Decouple Mondays #1: Bitcoin's correlation with stocks up while "digital gold" narrative mellows
Weekly update (ending Oct. 9) on Bitcoin's correlation with Gold, the Nasdaq, the S&P 500, and the US T-Bill.
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This is the first edition of Decouple Mondays, a weekly update on Bitcoin’s correlations with the main traditional assets in the market, updated each Monday morning (8 am EST).
Let’s get to it!
Short-Term Market Action
S&P 500 shows ascending trend
Bitcoin is often characterized as Digital Gold or the Digital Safe-Haven, given its similar reserve status’ features as gold and its returns’ correlation.
However, in the past week, the 30-days correlation between the S&P 500 and Bitcoin returns is on ascending trend, reaching similar values as in late-July when it reached its all-time high ( 75.8%). This week finished with a 55.3% correlation, close to its previous high in early-September (58.5%).
Looking at the last 60 days correlation, the latest increasing trend is also present but mellowed out due to a higher timeframe under analysis.
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff7cf7906-3a38-4483-bfdd-d09f16512a6c_14400x7200.png)
Nasdaq follows the S&P 500
The 30-days correlation between the Nasdaq and Bitcoin's returns is also on an ascending trend, similar to Bitcoin’s relationship with the S&P 500. This week finished with a 56.1% correlation, close to its previous high in early-September (63.5%).
Looking at the last 60 days correlation, the latest increasing trend is also present, but on a lesser scale.
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F2bf40ef3-0ebd-4ab3-a85f-0275f02de8d4_14400x7200.png)
Gold with opposite short-term action to stocks
In the opposite direction, the 30-days correlation between Gold and Bitcoin's returns is on a descending trend, contradicting the digital gold narrative. This week finished with a 37.5% correlation, far from its previous high in late-July (60.7%) and its all-time high amid the March crash (69.6%).
Looking at the last 60 days correlation, the latest decreasing trend is also present, but on a lesser scale.
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa34b58cc-d5e9-401e-ae71-978d7c7ed05c_14400x7200.png)
US 10-Years T-Bill
We wouldn’t expect to compare one of the most volatile assets in the market (Bitcoin) to the US treasury bill yields and find a meaningful relationship. However, Bitcoin’s usual short-term correlation (30-days) with the US government-backed asset shows steep up and down periods.
This week finished at 31.7% while having reached its all-time high in late-July (64.6%).
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F19ea7df3-a85c-464e-976f-184fdd8cf449_14400x7200.png)
Long-Term Market Action
Despite the short-term correlation shift, the long-term trends between Bitcoin and traditional assets persist. Analyzing more than 10 years of data, we can say that Bitcoin is non-correlated to any of these assets.
All-Time Correlations
Bitcoin’s correlation with each asset between 20 July 2010 - 9 October 2020:
S&P 500: 9.79%
Nasdaq Composite: 9.35%
Gold: 7.55%
US 10-year T-Bill: 3.69%
Looking at the 1-year rolling correlation between the stock indexes (S&P 500 and the Nasdaq) and Bitcoin, we can see that its relationship is at the highest it has ever been.
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F6f7079ff-77d4-4600-80d7-925ef39b4468_14400x7200.png)
The 1-year rolling correlation between Bitcoin and gold reached an all-time high recently, starting a slight descending trend in the last days due to its short-term action.
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fee5db179-f10b-4627-99b7-3fe5e0fe14d2_14400x7200.png)
As seen before, Bitcoin is not correlated to US T-bills even though the correlation slightly increased in the last months (8-9%).
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc55fe10a-52d3-4ca3-bb5a-7ab808dfe8da_14400x7200.png)
What lies ahead?
Bitcoin’s long-term correlation with stocks and gold reached all-time highs this year, resulting from the widespread market recovery since the March crash. However, looking at short-term correlations, these higher relationships were surpassed in the summer to reach new highs, maintaining an ascending trend.
This can have a significant impact on the digital gold narrative amid the recent higher relationship with stocks, provoking more discussion on which assets are more connected to Bitcoin or not.
As stimulus check negotiations are back on the table, we can expect further up-movement in stock markets, with the natural spill-over into Bitcoin and the continuation of the joint correlations between Bitcoin and traditional assets, as we’ve seen during 2020.
Where do you think the market is going? Leave your comments below and let’s get the discussion going until the next edition of Decouple Mondays. Stay tuned!
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Data sources: Bitcoin daily price data from Coinmetrics.io; S&P 500, Nasdaq and US T-Bill price data from Yahoo Finance; Gold price data (LBMA PM) from Gold.org
Image use: If you want to use any of the graphs published, please feel free to reach me @itsoneanalyst and I’ll send the images with the highest quality possible.
Disclaimer: This newsletter does not represent any kind of investment advice and it is intended as informational only. In any kind of investment activity, you should conduct your own research and evaluate at your own risk. A word of caution: Correlation does not mean causality.