Bitcoin’s Divergence from Gold and S&P 500

Analyst James V. found, however, that it is closely correlated with Ethereum and diverges with gold.

The data shows that the S&P 500 and gold are diverging with bitcoin, with a correlation of -0.05 and -0.12, respectively. Meanwhile, the US dollar and the Nasdaq moved slightly in sync with the king of cryptocurrencies with their correlation figures standing at 0.04 and 0.12, respectively. Notably, Bitcoin and Ethereum have the highest positive correlation at 0.70.

Bitcoin as a Distinct Asset Class

Overall, the results of the study indicate that Bitcoin is a distinct asset class since its correlation with major traditional financial assets is weak or negligible. This standalone nature suggests that Bitcoin’s performance, under normal market conditions, may not be significantly affected by the volatility of other assets, particularly in traditional finance, including stocks and precious metals.

Bitcoin’s Decreasing Correlation with Stocks

The decrease in the correlation is seen as a net positive for bitcoin. Thus, this may make Bitcoin a more attractive investment option for those seeking portfolio diversification.

Bitcoin’s correlation with stocks may continue to decline in the coming months, given the recent developments in the cryptocurrency space. For example, recent Bitcoin ETF deposits by major financial institutions such as BlackRock and Fidelity have fueled optimism and increased investor interest in Bitcoin.

Although the US Securities and Exchange Commission (SEC) has been cautious and has not yet approved a spot Bitcoin ETF, the community is overly optimistic that improvements are coming, and the regulator can finally give the green light.

The Potential Impact of Crypto Derivatives

The approval of this crypto derivative will likely support Bitcoin prices as institutions will have a way to diversify into the world’s most liquid crypto asset, finding exposure to potentially high growth in the coming months.

Cautious Outlook and Long-Term Optimism

Despite the positive outlook for Bitcoin due to the lower correlation, analysts remain cautious about potential macroeconomic factors that could affect prices, such as monetary policy changes as we saw throughout 2022 and the better half of 2021.

However, the long-term outlook for Bitcoin remains optimistic for the time being, given its deflationary nature and increasing adoption. In the second quarter of 2024, the Bitcoin network will adjust its emissions, halving miners’ rewards to 3.125 BTC, increasing the currency’s scarcity.