The financial press often points to Bitcoin’s (BTC) correlation with big tech companies. “Bitcoin trades like tech stocks” is a common refrain, while Bitcoin tends to have a heavily inverse relationship with the U.S. dollar.

But are these correlations set in stone? Can they help predict future price movements? Let’s take a closer look at a few reports analyzing the relationship between Bitcoin and various asset types.

Bitcoin’s historical correlation varies by time frame

a report The research report published by the Multidisciplinary Digital Publishing Institute in October 2022 reached several key conclusions regarding Bitcoin’s correlation with traditional financial assets, including:

  • Extreme volatility in the Bitcoin market means that long-term correlations are stronger than short-term ones.
  • “The positive correlation between Bitcoin and risk assets increases during extreme shocks,” such as during COVID-19.
  • Bitcoin can be positively correlated with risky assets and negatively correlated with the US dollar.
  • Bitcoin can be used as a hedge against the US dollar.

While some of these points can be disproved by the latest price data from the past 9 to 10 months, such as a sharp drop in volatility, it is still possible to gain insight by examining them. Additionally, other researchers have delved deeper into the relationship of specific assets to Bitcoin over set time frames.

Cryptocurrency Specific Stocks

Some cryptocurrency-related stocks have a higher correlation to Bitcoin than to any other asset in the market. The 90-day correlation coefficients for BTC/MSTR, BTC/COIN, and BTC/RIOT have all remained around 1 for the past few months. The notation “BTC/xxxx” represents the correlation coefficient of each asset relative to Bitcoin.

For MicroStrategy (MSTR), since September 2022, the coefficient has dropped to no less than 0.68. The coefficient for Riot Platforms (RIOT) dropped to about 0.75 in June 2023, while Coinbase (COIN) briefly approached 0 during May and June.

Year-to-date chart of COIN, ROIT, and MSTR with 90-day correlation coefficient compared to BTC. Source: TradingView

All of these stocks have outperformed Bitcoin so far this year, while also exhibiting greater volatility. Investors can use these assets as a proxy for bitcoin, which cannot be purchased through a brokerage account.

One of the reasons these three stocks are so closely tied to Bitcoin has to do with their respective companies’ balance sheets. They all hold large amounts of Bitcoin.

As shown in the table below, MicroStrategy is the listed company with the most bitcoins, with 152,333 bitcoins; Coinbase ranks fourth with 10,766 bitcoins; Riot ranks eighth with 7,094 bitcoins.

Bitcoins held by listed companies. Source: CoinGecko

precious metal

Silver wins when it comes to correlations with commodities and precious metals Gold has mirrored Bitcoin’s price action since 2019.

November 2022 Report By Jordan Doyle and Urav Soni, CFA Institute, “How Do Cryptocurrencies Relate to Traditional Asset Classes?” reveals the most correlated assets to Bitcoin.

Cryptocurrency and commodity correlation heatmap.Source: CFA Institute

silver has always been The commodity most closely correlated with Bitcoin between October 2019 and October 2022 had a correlation coefficient of 0.26, the report said. In contrast, gold has a correlation of only 0.15, likely due to silver’s greater volatility.

The report states:

Silver has the highest correlation, with the highest correlation between silver and Bitcoin at 0.26. Bitcoin, the so-called “digital gold,” has a weak correlation with the precious metal.

Passive and Active Equity Funds and Bonds

When it comes to overall stocks and their correlation to Bitcoin, looking at an index or exchange-traded fund will be the most common comparison. This provides a general overview of the asset class, rather than focusing on one specific stock, which may have multiple factors influencing it.

As expected, growth funds tend to be more correlated with cryptocurrencies, possibly due to their more speculative nature. especially:

“Growth funds have a stronger correlation with cryptocurrencies than value funds. For example, the correlation between small-cap growth funds and Bitcoin is 0.41, while the correlation between small-cap value funds and Bitcoin is 0.35 .”

Cryptocurrency, stock funds, and bonds correlation heatmap.Source: CFA Institute

In other words, the cryptocurrency market as a whole is “less sensitive” to interest rate dynamics, which are at least partially affected. Leading to a sharp drop in the stock market in 2022.

In the end, bonds have little to do with Bitcoin. Passive bond funds had a correlation of just 0.11, while active bond funds were only two basis points higher at 0.13. All data points are from October 2019 to October 2022.

Bitcoin correlation is not a crystal ball

Due to the high volatility of Bitcoin prices, all correlations can change in an instant. Nonetheless, the data used here provides an accurate picture of the assets most closely correlated with Bitcoin in the near term.

Related: Bitcoin and Correlations: Examining the Relationship Between Bitcoin, Gold and Nasdaq

Crypto-specific equities are likely to continue to have strong correlations due to Bitcoin holdings, while correlations with commodities and equity funds could quickly change direction going forward.

This article does not contain investment advice or advice. Every investment and transaction involves risk, and readers should do their own research when making a decision.