Bitcoin: Not Uncoupled, But Unbothered

[Forum Admin]

Bitcoin: Not Uncoupled, But Unbothered

 

 
Bitcoin rebounded this past week, passing above $91,000 for the first time since early March after falling below $80,000 earlier in April. It briefly cleared $94,000, a 25% move off the April 9 lows. Meanwhile, U.S. equities such as the S&P 500 have seen a 14% increase during the same time. This relative outperformance and a weakening of how closely the two assets move in tandem have reignited talks about Bitcoin decoupling from equities. 

 

Correlation metrics such as the 30-day Pearson correlation coefficient have been used to support the notion that decoupling is upon us. Arguably, the most critical aspect of these correlation indicators is the direction of the relationship. For example, one increases, and the other increases. A reading near 1 implies they’re moving together; near zero means they’re moving independently, and -1 means moving in opposite directions.

 

For the past three weeks, the 30-day Pearson correlation coefficient has shown Bitcoin and equities transitioning from moving together to driving independently.  The coefficient has been shrinking from above 0.80 at the beginning of April to below 0.35.

 

That said, I take correlation metrics with a grain of salt. Bitcoin’s correlation with equities—particularly benchmark indices like the S&P 500 and Nasdaq—has varied wildly. At different historical points, it has exhibited positive, negative, and near-zero correlation.

 

When people speak of decoupling, they mean that Bitcoin is finally acting like a safe-haven asset akin to gold, and less like a risk-on asset such as equities. 

Depending on your perspective, we’re either already there or getting close.

 

On the one hand, Bitcoin has been by far and away the best-performing asset over the past 10 years—there is no second best. Those who have endured volatility for any decent amount of time have protected and, in many cases, significantly grown their net worth.

 

On the other hand, Bitcoin’s gut-wrenching volatility during risk-off events still aligns more closely with equities than with traditional safe-haven assets. During market downturns, Bitcoin has historically sold off in tandem with risk assets—hardly a reassuring trait for those seeking stability.

 

I think Bitcoin will eventually become a fully fledged safe-haven asset, but we’re not there yet. Still, with a low enough time preference (and a strong stomach), for example, five or more years, I think Bitcoin already is one.

 

Other than the safe-haven narrative, I think there are explanations for Bitcoin’s recent outperformance. One is that corporations have begun to pile into the Bitcoin treasury playbook made famous by Saylor’s Strategy, and shown to be reproducible by Metaplanet. Now, companies are being formed solely to run this business. 

 

The Bitcoin spot ETFs continue to provide a firmer floor on the price than the paper-handed crypto native community.. U.S. spot Bitcoin ETFs attracted nearly $1 billion in new capital this past week.

 

Finally, the U.S. shift from crypto antagonism to cooperation is most likely a pro-crypto secular shift that will increase U.S. crypto adoption and provide tailwinds to U.S.-based crypto companies. Of course, Bitcoin will be the overwhelming beneficiary of Americans buying crypto assets.

 

Speaking briefly about non-bitcoin crypto assets, the entire crypto market went up this week, even Ethereum, which gained 11% over the past seven days. SOL is up 13%, DOGE 15%, and LINK 19%. Whether this is a bounce before even further declines or the beginnings of a risk-on rally is unclear.