6 charts in 10 years to understand the correlation between Bitcoin price and mainstream asset trends

As the giants stepped up their steps to enter Bitcoin, the financial asset attributes of Bitcoin became stronger. Although Bitcoin is considered an independent asset with its own price trend, as Bitcoin further becomes an important part of the global financial system, its correlation with traditional assets will inevitably increase.

From the dimension of more than ten years from 2012 to the present, we explored the degree of correlation between Bitcoin and risk assets (US stocks), safe-haven assets (US bonds and gold), and the global macroeconomic cycle (commodity index). Bitcoin price successfully broke through and stood firm at $1,000 as the dividing point, focusing on analyzing the correlation between Bitcoin and other assets after 2017.

In the early stage, Bitcoin experienced a period of exploration and imitation. This is because when Bitcoin first appeared, people did not know much about its nature and potential. The value and use of Bitcoin were not clear at this stage, and the mainstream Investors and institutions are wary of it.

However, with the passage of time, Bitcoin’s decentralization, fixed supply cap and other characteristics have attracted more and more attention and trust, making Bitcoin gradually finalized, and finally won mainstream recognition. Especially since 2017, the price of Bitcoin has shown an increasingly strong correlation with four traditional assets such as U.S. stocks, U.S. bonds, gold, and commodities.

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

It can be clearly seen from the figure that the US stock index has a high correlation with the price trend of Bitcoin. We take the price of Bitcoin breaking through $1,000 in 2017 as the boundary. According to calculations, before 2017, the correlation coefficients between Bitcoin, Nasdaq and S&P 500 were 0.6996 and 0.7217 (Pearson correlation coefficient).

The two reached the stage high almost simultaneously near the end of 2017, and reached the highest point in the statistical time period near the end of 2021, and then fell and rebounded synchronously. After 2017, the correlation coefficients of Bitcoin, Nasdaq and S&P 500 are 0.8528 and 0.8787 (Pearson correlation coefficient), respectively. Comparing the two, we can find that the correlation between Bitcoin and US stocks has gradually strengthened. After 2017, the correlation coefficients are all greater than 0.8, which belongs to the category of strong correlation.

We choose London spot gold (XAU) as the anchor of gold price trend for analysis. Gold is a typical safe-haven asset. From the figure, before 2016, the price of gold was gradually decreasing, but the price of Bitcoin was slowly increasing. The subsequent trends of the two showed convergence, and both reached stage highs in 2018. In August 2020, the price of gold reached its highest point and then fell back, but the price of Bitcoin rose rapidly afterwards, entering a big bull market. The peak of Bitcoin price is precisely the periodical trough of gold price (2021). But after November 2022, both bottomed out and rebounded at the same time, showing consistency in trend.

Similarly, we choose 2017 as the watershed year. Before 2017, the correlation coefficient between the two was -0.6202, which is a relatively obvious negative correlation trend; after 2017, the correlation coefficient between the two is 0.6889 (Pearson correlation coefficient), which belongs to the medium degree of linear correlation.

We chose the most representative ten-year and two-year treasury bonds in the United States, and approximately believe that they represent the medium- and long-term risk-free interest rate and the medium- and short-term risk-free interest rate respectively. U.S. bonds, like gold, are typical safe-haven assets. It can be seen from the figure that both the ten-year and two-year yields have a poor correlation with the price of Bitcoin. Especially for two-year U.S. bonds, the 20-year and 21-year yields are extremely low, but the price of Bitcoin has been rising all the way. After testing the correlation between the two after 2017, the correlation coefficients between Bitcoin and the ten-year U.S. bond and the two-year U.S. bond are -0.1382 and -0.1756 (Pearson correlation coefficient), which belong to the category of low correlation, and the two showed a negative correlation.

Commodity prices are affected by many factors, but they can roughly reflect the global macroeconomic cycle. It can be seen from the figure that the correlation between the two is relatively high, and both continued to rise after bottoming out in the first half of 2020, and reached their highest point almost simultaneously in November 2021, and finally began to fall synchronously. The correlation test shows that the correlation coefficient between the two after 2017 is 0.7184 (Pearson correlation coefficient), which belongs to medium and high correlation.

According to the above calculation and analysis, after 2017, the ranking of the correlation between Bitcoin and other assets is “US stocks>commodities>gold>U.S. bonds”. Sex is lower. Therefore, we can consider Bitcoin to be a risky asset.

Fundamentally speaking, the price change of a financial product is affected by two aspects: fundamental changes and market risk appetite. When the global economy is improving, that is, when commodity prices are rising, market risk appetite will naturally increase, so Bitcoin also rises together with other risky assets such as US stocks. The U.S. economy has continued to be strong in the near future, coupled with the widespread application of AI large models will become the main driving force for productivity improvement in the next 10 to 20 years, and with the productivity improvement, interest rate cuts are also easier to accommodate more liquidity. Therefore, we have There are reasons to believe that the risk appetite of global investors will gradually increase, and more investment funds will flow into the market. At that time, the price of Bitcoin will most likely perform.