What Does Low Correlation with American Stocks Mean for Bitcoin?

According to cryptocurrency market data provider Kaiko, the correlation of Bitcoin with the S&P 500 index has fallen to its lowest level in two years, standing at just 3 percent, highlighting the increasing independence of the asset from traditional finance. Some experts have argued over the years that such a development could act as a catalyst and push the price of Bitcoin to a new all-time high.

As revealed by Kaiko, the last time the correlation of Bitcoin with the S&P 500 index was 3 percent was in August 2021. It is interesting to note that the correlation was around 50 percent at the beginning of 2023, and about a month ago it was significantly above 35 percent.

Given the rise in stock prices of leading companies such as Apple, Tesla, and Amazon since the beginning of the year, the S&P 500 has climbed over 18 percent year-on-year. Bitcoin, on the other hand, has performed much better, increasing its value by over 75 percent since the start of 2023.

Prominent figures in the crypto space have claimed that the separation of Bitcoin from stocks and traditional finance could spur the asset’s price growth. One such figure is British cryptographer and CEO of Blockstream, Adam Back. Last year, he stated that the largest cryptocurrency could rise to $100,000 by the end of 2022 if it maintained a low correlation with stocks.

However, Bitcoin ended the year with a high correlation with the S&P 500 index and Nasdaq, while its price on December 31 (approximately $16,500) was far from the predicted figure.

Many Bitcoin advocates have pointed out that one of the asset’s greatest merits is its ability to serve as a hedge against inflation. However, the correlation with stocks, recorded in some periods last year, acted as a counterargument to that thesis.

It is important to note that this year things look quite different. In addition to separating from the S&P 500 index, Bitcoin has also ignored the banking crisis in the U.S. that occurred this spring. The asset’s price fell shortly after the collapse of Signature, Silicon Valley Bank, and Silvergate Bank, but later began to rise.