A popular topic amidst the crypto trading community is the correlation between Bitcoin (BTC), gold, and the Nasdaq. Traders often discuss how BTC’s price action seems to have connection with gold and tech stocks, and whether this correlation should impact the investment decisions of average investors.
During much of 2022 and early 2023, the narrative that “Bitcoin trades in tandem with tech stocks” was prevalent. More recently, the focus has shifted to Bitcoin’s correlation with gold, especially after the failures of Silvergate, Signature Bank, and Silicon Valley Bank in March. The rationale behind these correlations is fairly intuitive; if Bitcoin is viewed as a speculative asset, its trading pattern might align with tech stocks. Conversely, if it’s considered a safe-haven asset, a correlation with gold seems reasonable.
However, one must remember that correlations can be transient. Long-term market positions aren’t always deciphered from temporary correlations shared between two assets. Examining one-year correlations between Bitcoin, gold, and the Nasdaq reveals interesting insights. While year-to-date, Bitcoin gained roughly 58% and the Nasdaq around 36%, gold saw a modest increase of just over 7%.
According to the 90-day correlation coefficient, BTC currently holds a positive correlation with gold (0.58) and a negative correlation with tech stocks (-0.65). However, any reliance on such correlations as part of an investment strategy could be risky, as the relationship between assets might break down at any moment.
It’s important to consider long-term perspectives, as well. Over the past 14 years, Bitcoin has risen against the US dollar by tens of millions of percentage points – a feat few other asset classes can claim. With such remarkable returns and a high degree of volatility, a long-lasting correlation with other assets becomes less likely.
In conclusion, investors ought to remember that correlations between Bitcoin, gold, and tech stocks typically don’t last beyond a year or two, and hence, may not hold much significance. Market interpretation must be done cautiously, keeping potential risks due to fluctuating correlations in mind.
Source: Cointelegraph
