No, Bitcoin is still as correlated as ever with the stock market

Key Takeaways

• Bitcoin’s recent surge has drawn surprise as banking sector has pulled stock market down
• Declaring this a break in the correlation trend is a mistake, writes our Data Analyst Dan Ashmore, who says Bitcoin remains risk-on
• Both the stock market and Bitcoin continue to trade off interest rate expectations, aside from isolated episodes of systemic risk to Bitcoin, the numbers show
• Recent week shows a slightly softer relationship than normal, amounting to a less dramatic version of the price action around the FTX and Celsius collapses in 2022
• Normal correlation bound to be resumed soon, our data shows

One of the dominant storylines over the last year or two so has been the incredibly tight relationship between Bitcoin and the stock market. 

We will get into the numbers shortly, but the mantra is that when the stock market jumps, Bitcoin jumps more. When the stock market falls, Bitcoin falls more. That is the bottom line. But is it true still true?

Some market participants are starting to think that this relationship is shifting, especially given events of the past week. The word “uncorrelated” is thrown around a lot in markets, and now some are saying Bitcoin is making progress towards that status. I’m not so sure that is correct. 

Correlation has been high since 2022 started 

Let us first look back over the price action from the start of 2022, which more or less marked the stock market peak. 

I’ll get deeper in the next section, but the best way to kick off an assessment of correlation is by the old-fashioned eye test. Let’s begin by charting Bitcoin’s returns against the Nasdaq since the start of 2022:

It is immediately clear that there is a strong pattern here. 

Before looking at correlation coefficients, by looking at the respective price action we can see that the assets have been in lockstep aside from two (visually notable) periods. The first is August 2022, when Bitcoin lagged behind the Nasdaq’s gains. It still gained, but it was outperformed by the Nasdaq – uncommon for periods of expansion. This was shortly after the contagion crisis sparked by Celsius (it filed for bankruptcy in mid-July). 

The second period of divergence that jumps out is a much more noticeable one – November 2022. As the Nasdaq surged off softer inflation readings and optimism on interest rate policy, Bitcoin…