Bitcoin and Correlations Examining the Relationship Between BTC, Gold, and Nasdaq

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Some news sources have liked to draw comparisons between the price action of Bitcoin (BTC) and that of other assets. In particular, the two most commonly compared asset classes are gold and technology stocks.

Although there is a correlation, this tends to be big news. For much of 2022 and early 2023, for example, Bitcoin trading in tandem with the tech stock narrative was prevalent. Since that correlation broke down, however, there doesn’t seem to be much related media coverage.

Now, a new narrative has taken center stage: that of Bitcoin’s correlation to gold. Since the failures of Silvergate, Signature Bank and Silicon Valley Bank in March, both assets have recovered. Both of these accounts make sense on the surface. If Bitcoin is to be considered a speculative asset, then it could trade like a tech stock. And if Bitcoin is more of a safe-haven asset, a correlation with gold seems reasonable.

It is important to note, however, that correlations can come and go. Just because two assets share a correlation for a while doesn’t mean they share a place in the long-term market. And when zooming out to longer timeframes, it may be possible to rule out correlations of any kind.

Let’s examine these two correlations on a one-year basis and see if they hold.

Bitcoin, Gold and NASDAQ: One-Year Correlation Analysis

Year-to-date, Bitcoin has gained around 58%, rising from $16,600 at the start of the year to over $26,000 today. Over the same period, the NASDAQ gained about 36%, from 11,000 to just under 15,000.

Meanwhile, gold is up just over 7% year-to-date.

YTD chart of BTC/USD, NASDAQ and gold with 90-day correlation coefficient. Source: Trading View

According to the 90-day correlation coefficient, BTC is positively correlated to gold (0.58) and negatively correlated to tech stocks (-0.65) right now. For most of this year, BTC has been highly correlated to both assets. At the start of the year, the correlation with gold was deeply negative, while the correlation with technology stocks was just below neutral.

So which one is it? Correlation safe haven or correlation assets at risk? Or does the presence of multiple correlations indicate that there is no correlation? Does a similar price action on a yearly basis constitute a meaningful relationship between two assets in the first place?

Such a discussion could become quite lengthy. These questions are best interpreted on a rhetorical basis, i.e. they imply that there could be a number of assets that share similar price action patterns on a one-year chart. .

When looking at the matter in terms of percentage gain, things look even more different: Gold is up 9%, while Bitcoin is up 18% and NASDAQ is up 30%.

It would be great if we could derive some meaning from the fact that Bitcoin tends to correlate with stocks for a while now and then. But so far this year, the relationship between the two has remained constant throughout the banking crisis that began in March and led to a big rally for BTC. Since then, the relationship has faded as NASDAQ hit year-to-date highs and BTC mostly traded sideways.

On a long enough timeline, everything falls apart

Over the past 14 years, Bitcoin has risen against the US dollar by tens of millions of percentage points. There are few asset classes that can boast similar returns. Other assets also don’t exhibit the same degree of volatility, making a long-standing correlation even less likely.

BTC/USD all-time chart. Source: Trading View

To date, gold has risen from $800 at the start of 2009 to $1,945 today, a gain of almost 150%.

Gold/USD all-time chart. Source: Trading View

The NASDAQ has risen more than 10 times since the start of 2009, with returns exceeding 1,000%. Nice gains, but a far cry from the 52,000,000% that Bitcoin has reported from July 2010 to today.

NASDAQ all-time chart. Source: Trading View

The main takeaways here are:

An asset that grows more than 50,000,000% over its lifetime may not correlate to much else. Correlations between Bitcoin, gold, and tech stocks often cannot be observed over time periods longer than a year or two. Largely because of the previous two points, correlations don’t matter much.

Investors would do well to keep this in mind when interpreting the markets. Betting on a specific correlation as part of a strategy could be risky, as that correlation could break at any time.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are the sole authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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