Tuesday, 30 May 2023

Crypto News

Bitcoin still trading like a risk asset, despite claims of decoupling amid banking crisis

Bitcoin still trading like a risk asset, despite claims of decoupling amid banking crisis

Key Takeaways

  • First Republic has become the latest bank to collapse in the US
  • Bitcoin has bounced this week, as it did in March when SVB fell and the banking crisis was triggered
  • Our Head of Research, Dan Ashmore, contends that Bitcoin remains a risk asset, despite claims from enthusiasts that a decoupling is occuring
  • Correlation with stock market is still high, he writes, pointing to altered expectations around interest rate policy as the reason Bitcoin has moved upward

There has been chatter amid the market recently (again) that Bitcoin is decoupling from stocks. Something about Bitcoin offering an alternate store of value outside the realm of the fiat world, a proposition that has suddenly become a lot more valuable as the banking turmoil striking the US rages. 

Let me start by saying that I don’t think my opinion is very valid here. I can’t predict the future. But I want to look at the numbers because I believe they prove that this theory, that Bitcoin has decoupled, is objectively false. 

I wrote a deep dive on Bitcoin’s correlation with stocks in March, when this theory originally surfaced as Silicon Valley Bank collapsed, while Bitcoin raced upwards. The same logic applies now, so let me try summarise it by refreshing the same numbers. 

And a quick note – this article is nothing about my beliefs around Bitcoin’s trajectory in the long-term. Whether Bitcoin decouples in future and establishes itself as a store of value akin to gold, uncorrelated to other risk assets, is a debate for another time and not one I will delve into here. I’m purely looking at the price action today and saying that, as of May 2023, Bitcoin is trading like an extreme-risk asset, completely removed from this uncorrelated vision. 

Bitcoin’s correlation with the Nasdaq

The natural place to look is tech stocks, being one of the riskier subsectors of the equity universe. The Nasdaq, being a tech-heavy index, is often seen as the benchmark for this sector. So let us chart Bitcoin’s correlation with the Nasdaq over the past couple of years. 

Using a 60-Day Pearson measure, the chart shows that the correlation has bounced around a lot over the past couple of years. For the most part, however, it has shown a relatively strong relationship, frequently residing above 0.5. 

There were a couple of dips. The first is clearly May/June 2021,…

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