Title: "Over a 10-Year Period, 6 Charts to Understand the Correlation Between Bitcoin Prices and Mainstream Assets Like U.S. Stocks"

Source: R3 PO

Author: WealthBee

As major players accelerate their entry into Bitcoin, the financial asset attributes of Bitcoin are becoming increasingly pronounced. Although Bitcoin is considered an independent asset with its own price trends, as it further becomes an important part of the global financial system, its correlation with traditional assets will inevitably increase.

We explore the correlation between Bitcoin and risk assets (U.S. stocks), safe-haven assets (U.S. Treasuries and gold), and the global macroeconomic cycle (commodity index) over a decade from 2012 to the present. We take the successful breakthrough and stabilization of Bitcoin's price above $1,000 as a dividing point, focusing on the correlation between Bitcoin and other assets after 2017.

In the early stages, Bitcoin went through a period of exploration and imitation because when Bitcoin first appeared, people were not very clear about its nature and potential. The value and use of Bitcoin were not defined during this stage, and mainstream investors and institutions were cautious about it.

However, over time, the characteristics of Bitcoin, such as decentralization and a fixed supply cap, attracted increasing attention and trust, allowing Bitcoin to gradually take shape and ultimately gain mainstream recognition. Especially since 2017, the price of Bitcoin has shown an increasingly strong correlation with four traditional assets: U.S. stocks, U.S. Treasuries, gold, and commodities.

From exploration and ambiguity to clear positioning and maturity, the evolution of Bitcoin over the past decade has not only witnessed its price curve growth but also its increasingly prominent position in the global asset market.

1. Bitcoin and U.S. Stock Trends: Strong Correlation

From the chart, it is clear that the U.S. stock index has a high correlation with Bitcoin's price trends. Taking the year 2017, when Bitcoin's price broke through $1,000, as a boundary, calculations show that before 2017, the correlation coefficients between Bitcoin and the Nasdaq and S&P 500 were 0.6996 and 0.7217 (Pearson correlation coefficients), respectively.

Both reached their peak nearly simultaneously at the end of 2017 and again at the end of 2021, followed by a synchronous decline and rebound. After 2017, the correlation coefficients between Bitcoin and the Nasdaq and S&P 500 were 0.8528 and 0.8787 (Pearson correlation coefficients), respectively. A comparison shows that the correlation between Bitcoin and U.S. stocks has gradually strengthened. After 2017, the correlation coefficients were all greater than 0.8, indicating a strong correlation.

2. Bitcoin and Gold Price Trends: Moderately Linear Correlated

We chose London spot gold (XAU) as the anchor for analyzing gold price trends. Gold is a typical safe-haven asset. From the chart, it can be seen that before 2016, gold prices were gradually decreasing, while Bitcoin prices were slowly increasing. Subsequently, the two trends showed convergence, with both reaching their respective peaks in 2018. In August 2020, gold prices reached their highest point and then retreated, while Bitcoin prices rapidly rose thereafter, entering a bull market. The peak price of Bitcoin coincided with a low point for gold prices (2021). However, after November 2022, both touched bottom and rebounded, showing consistency in their trends.

Similarly, we take 2017 as a watershed. Before 2017, the correlation coefficient between the two was -0.6202, indicating a significant negative correlation; after 2017, the correlation coefficient was 0.6889 (Pearson correlation coefficient), indicating a moderate linear correlation.

3. Bitcoin and U.S. Treasury Yield Trends: Low Correlation and Negative Correlation

We selected the most representative U.S. 10-year and 2-year Treasury bonds, considering them to represent long-term and short-term risk-free interest rates, respectively. Like gold, U.S. Treasuries are also typical safe-haven assets. From the chart, whether for the 10-year or 2-year bonds, the yields show a poor correlation with Bitcoin prices. Especially for the 2-year Treasury, the yields in 2020 and 2021 were extremely low, while Bitcoin prices continued to rise. Testing the correlation after 2017, the correlation coefficients between Bitcoin and the 10-year and 2-year Treasuries were -0.1382 and -0.1756 (Pearson correlation coefficients), respectively, indicating a low correlation and a negative correlation.

4. Bitcoin and Commodity Price Index: Moderately High Correlation

Commodity prices are influenced by many factors but can generally reflect the global macroeconomic cycle. From the chart, it can be seen that the correlation is high; both experienced a rebound after hitting bottom in the first half of 2020 and continued to rise, nearly reaching their peak simultaneously in November 2021, before starting to decline together. The correlation test shows that the correlation coefficient after 2017 is 0.7184 (Pearson correlation coefficient), indicating a moderately high correlation.

5. Conclusion

Based on the above calculations and analyses, after 2017, the ranking of the correlation of Bitcoin with other assets is "U.S. Stocks > Commodities > Gold > U.S. Treasuries," indicating a high correlation with risk assets and macroeconomic factors, but a lower correlation with safe-haven assets. Therefore, we can consider Bitcoin as a risk asset.

Fundamentally, the price movements of a financial product are influenced by two aspects: changes in fundamentals and market risk appetite. When the global economy is performing well, i.e., commodity prices are rising, market risk appetite naturally increases, leading Bitcoin to rise alongside other risk assets like U.S. stocks. Recently, the U.S. economy has remained strong, and the widespread application of AI large models is expected to become a major driving force for productivity improvement in the next 10 to 20 years. With productivity improvements, interest rate cuts will also accommodate more liquidity. Therefore, we have reason to believe that the risk appetite of global investors will gradually increase, and more investment funds will flow into the market, at which point Bitcoin prices are likely to perform well.