Ever since last month, the one-month correlation between Bitcoin and S&P 500 has been on a constant decline, going from an all-time high of 78.8% on July 8th to now just at 26%.
In the past 20 days, BTC/USD has surged 29%, currently trading at $11,750. Up 60.60% in 2020, the world’s leading digital currency is still down 40% from ATH.
The correlation between the two asset classes first started rising in March during the coronavirus pandemic sell-off when everything from gold, oil, and the stock market crashed.
“Sure, it was loosely correlated for a while there, but by now, bitcoin and the crypto markets are once again able to claim independence from the traditional markets,” said analyst Mati Greenspan.
As per the 90-day Pearson correlation between bitcoin and the S&P 500 since 2011, we are once again below 0.2, which means there is no correlation on a day-to-day basis anymore.
“It should probably be noted that even the peak of 0.6 only represents a loose correlation. Many stocks have a very high correlation with each other, usually above 0.8, even if they're in completely different industries, and many altcoins are similar,” he explained in his daily Quantum Economics email.
Time For a Change
In the current macro-environment of monetary stimulus, currency debasement, and bond markets in trouble with yields sinking to levels so incredibly low, investors and portfolio managers are “actively looking for other ways to achieve diversification.”
This search for an alternative asset is why precious metals have been surging like crazy. Gold has already hit a new all-time high, having topped $2,000, now close to hitting $2,100.
“The concept of TINA (there is no alternative) has been driving traders to stocks all year long, and I'm pretty certain it's time for a change, especially when there is a perfectly viable alternative sitting in plain sight,” said Greenspan.
This has bitcoin being digital gold and becoming a store of value narrative increasingly gaining traction, which “will continue to buoy the price of the benchmark crypto asset,” said Bloomberg in its recent report.
Besides increasing correlation, declining volatility relative to the bullion “indicates an enduring relationship for price advancement.” Bitcoin is at its lowest annual volatility levels compared to gold in about three years.
Moreover, unprecedented global central bank easing and Fed not even thinking about raising rates “should remain a tailwind for the quasi-currencies.”