Bitcoin traders frequently debate BTC’s connections with gold and stocks, but how significant are these correlations for the average investor?

Many media outlets are prone to drawing parallels between the price fluctuations of Bitcoin and those of other assets. Primarily, gold and tech stocks seem to be the top contenders for comparison.

Whenever a correlation exists, it tends to dominate headlines. Throughout most of 2022 and early 2023, the “Bitcoin moves in sync with tech stocks” narrative was widely circulated. However, as this correlation began to fade, so did its coverage in the news.

A fresh narrative is now stealing the limelight: Bitcoin’s correlation with gold. Following the failures of Silvergate, Signature Bank, and Silicon Valley Bank in March, both assets have seen an upswing. These narratives seem logical initially. If Bitcoin is perceived as a speculative asset, it may mirror the trends of a tech stock. Likewise, if Bitcoin is seen as a safe-haven asset, a relationship with gold seems plausible.

However, it’s critical to acknowledge that correlations can be fleeting. A temporary connection between two assets doesn’t necessarily imply a long-term association in the market. When taking a broader perspective, correlations of any kind may be dismissed.

To ascertain the validity of these claims, let’s scrutinize these correlations over a one-year period.

One-Year Correlation Analysis of Bitcoin, Gold, and NASDAQ

Since the beginning of the year, Bitcoin has experienced an approximate growth of 58%, surging from $16,600 to over $26,000. During the same period, the NASDAQ has seen an increase of roughly 36%, climbing from 11,000 to just short of 15,000.

Gold, on the other hand, has seen just over a 7% growth year-to-date.

Based on the 90-day correlation coefficient, BTC currently shares a positive correlation with gold (0.58) and a negative correlation with tech stocks (-0.65). For most of this year, BTC has been closely linked to both assets. At the start of the year, the gold correlation was considerably negative, whereas the tech stocks correlation hovered just below neutral.

So, which is it? Does Bitcoin exhibit a safe-haven correlation or a risk asset correlation? Or does the existence of multiple correlations suggest no correlation at all? Does similar price behavior over a year imply a substantial connection between two assets?

Such a discussion could become extensive. These questions are best considered rhetorically, implying that any number of assets could exhibit similar price action patterns on a one-year chart.

From the perspective of percentage gains, the landscape changes again: gold is up 9%, Bitcoin 18%, and NASDAQ 30%.

It would be insightful if we could infer something substantial from Bitcoin’s occasional correlation with equities. However, this year, the relationship remained consistent throughout the banking crisis that began in March and triggered a significant rally for BTC. Since then, the correlation has dissipated, as NASDAQ soared to year-to-date highs while BTC largely traded sideways.

The Long-term View: Everything Eventually Collapses

Over the past 14 years, Bitcoin has ascended against the US dollar by millions of percentage points, a feat few other asset classes can match. This level of volatility is uncommon among other assets, making a lasting correlation unlikely.

As of today, gold has climbed from $800 in early 2009 to $1,945, representing a nearly 150% gain.

NASDAQ has increased over tenfold since early 2009, generating returns in excess of 1,000%. Impressive gains, indeed, but nowhere near the 52,000,000% return that Bitcoin has delivered from July 2010 to the present.

The primary takeaways are:

• An asset that soars by more than 50,000,000% during its existence probably doesn’t correlate much with other assets.
• The connections between Bitcoin, gold, and tech stocks are often unnoticeable on timeframes exceeding a year or two.
• Largely because of the previous two points, the correlations don’t hold much importance.

Investors should bear this in mind when analyzing markets. Relying on any particular correlation as part of an investment strategy could prove risky, as that correlation could dissipate at any time.