Bitcoin, one of the biggest cryptocurrencies, has always been known for its high unpredictable prices. It has always experienced fluctuations in value. But in opposite, the S&P 500 index, a barometer of the U.S. stock market, offers more stable returns of around 9% to 10% (average) annually.
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Bitcoin-Stock Markets Correlation- A Case Study
A recent study by Glassnode says that adding Bitcoin to a traditional investment can increase its overall performance. For example, making an addition to the Coinbase Core Index, which is usually in favour towards Bitcoin and Ether, to a traditional 60:40 ratio, has improved its risk returns over 5 years which ended in March 2024.
How Did The Year 2024 Start For Bitcoin?
- In the combined report by Coinbase & Glassnode, it was shown that Bitcoin saw a huge 69 per cent return in its first quarter of 2024 ie. from January to April. In the first few months of 2024, the cryptocurrency market saw a high increase in total market capitalization, which contributed to high profits in Bitcoin, Ether etc and a rise in stablecoin issuance. It outperformed the other assets. Bitcoin maintained a very low correlation with other major assets despite its introduction of Bitcoin ETFs.
- The second quarter ie. the months of April and May of 2024 began with a 15% decline in Bitcoin’s value from its peak, with a rise in the DXY index above 106. The report also shows a decrease in Bitcoin’s uncertainty since January 2020, suggesting a long-term downward trend.
Understanding Bitcoin’s Market Movements
As Bitcoin matures as an asset class, its changing nature is expected to slow down now. While the previous correlation between Bitcoin & the stock markets has been low, there has been a bit increase in recent years, with the correlation rising to 0.41 over the last five years. The factors for this correlation can be the decline in inflation and the U.S. Federal Reserve’s decision to pause interest rate hikes.
The increasing involvement of institutional and retail investors in both equity and cryptocurrency markets may lead to price movements of these assets, particularly during times of certain Bitcoin price changes.
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Disclaimer: This post is intended solely for informational purposes and should not be taken as legal, tax, investment, financial, or any other form of advice. Although all the information provided is true to the best of our knowledge, it is advisable to research well before making any kind of investments or decisions in general. The team of ReadingCrypto bears no responsibility in the event of any adverse outcomes.
