According to a recently discussed metric, Bitcoin (BTC) appears to be currently undervalued compared to the S&P 500. The Ordinary Least Squares (OLS) regression methodology calculates a fair value of 27,550 for BTC based on the S&P 500 price over the past 200 days. With its current price hovering in the mid-$26,000s, BTC is undervalued by roughly 3.7%. This marks the largest undervaluation of the cryptocurrency compared to its fair value since mid-February.
Historically, Bitcoin has shared a close trading correlation with US stocks, particularly growth stocks. Analysts often view both as speculative risk assets sensitive to shifts in interest rates. The recent rise in big tech stocks has led to optimism surrounding the potential impact of artificial intelligence (AI) technology on productivity and profits. As a result of the historical correlation between stocks and Bitcoin, the cryptocurrency has the potential to stage a “catch-up” rally as stocks continue to soar.
However, it is worth noting that the correlation between the S&P 500 and Bitcoin’s price has weakened significantly over the past year. Last year, the 60-day Pearson correlation between the two assets stood above 0.6, but by June 6th, it had dropped to around 0.14. This decrease in correlation can be attributed in part to the mini-bank crisis in March, which negatively affected the equity sector but injected a dose of safe-haven demand into Bitcoin.
This shift in price action suggests that investors are gradually beginning to perceive Bitcoin as a decentralized and secure alternative to the current fiat-based monetary system, much like its proponents have long suggested. Consequently, Bitcoin’s correlation to the S&P 500 has weakened, while its correlation to gold has grown stronger. Bitcoin’s 60-day Pearson correlation to Paxful’s tokenized gold (PAXG), which closely tracks the spot gold price, was recently around 0.22, having reached yearly highs above 0.3.
In summary, while Bitcoin may currently be undervalued compared to the S&P 500, its weakening correlation with the index points to the evolving perception of the cryptocurrency as a safe-haven asset akin to gold. However, this new perception may limit the likelihood of a significant “catch-up” rally in Bitcoin that mirrors the ongoing surge in the equity market. The true impact and potential of this evolving relationship between Bitcoin and the traditional markets remain to be seen as the financial landscape continues to evolve.
Source: Cryptonews
