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Is Bitcoin depegging from the traditional market?
Key Points:
The correlation between Bitcoin and stocks and gold has recently fallen to nearly zero, indicating that Bitcoin is in a decoupling phase from traditional assets, which typically occurs during significant market catalysts or shocks. Although Bitcoin has a low correlation with interest rates, changes in monetary policy can also affect Bitcoin's performance. During the monetary tightening cycle from 2022 to 2023, there was a strong negative correlation between Bitcoin and interest rate hikes. Despite being known as "digital gold," historically, it has exhibited a higher beta coefficient and stronger upside sensitivity compared to stocks, especially in optimistic macroeconomic conditions. Since 2021, Bitcoin's volatility has been steadily declining, and its volatility trend is now closer to that of popular tech stocks, reflecting its risk characteristics maturing.
Introduction
Is Bitcoin decoupling from the broader market? Bitcoin's recent outstanding performance relative to gold and stocks has reignited discussions on this topic. In its 16-year history, Bitcoin has been assigned many labels, from "digital gold" to "store of value," and even "risk-on asset." But does it really possess these characteristics? As an investment asset, is Bitcoin unique, or is it merely a leveraged representation of existing risk assets in the market?
In this issue of the "Coin Metrics Network Status Report," we will explore the performance of Bitcoin in different market environments, focusing on the catalytic factors and conditions behind periods of low correlation with traditional assets such as stocks and gold. We will also examine how changes in monetary policy frameworks affect Bitcoin's performance, assess its sensitivity to the broader market, and analyze its volatility characteristics in conjunction with other major assets.
Bitcoin under Different Interest Rate Regimes
The Federal Reserve is one of the most influential forces in the financial markets because it can affect interest rates. Changes in the federal funds rate, whether in a monetary tightening or easing scenario, directly impact the money supply, market liquidity, and investors' risk appetite. Over the past decade, we have experienced a shift from a zero interest rate era to unprecedented monetary easing during the COVID-19 pandemic, and then to aggressive rate hikes in 2022 to combat rising inflation.
To understand Bitcoin's sensitivity to changes in monetary policy, we divide its history into five key interest rate regime phases. These phases consider the direction and level of interest rates, ranging from accommodative (federal funds rate below 2%) to restrictive (federal funds rate above 2%). Since interest rate changes are not frequent, we compare Bitcoin's monthly returns with the monthly changes in the federal funds rate.
Although the correlation between Bitcoin and changes in interest rates is generally low and concentrated around the middle level, some noticeable patterns still emerge when there is a shift in policy institutions:
· Loose Policy + Zero Interest Rate (2010 - 2015): Under the zero interest rate policy following the 2008 financial crisis, Bitcoin achieved the highest return rates. The correlation between Bitcoin and interest rates is roughly neutral, which aligns with the early growth phase of Bitcoin.
· Loose Policy + Interest Rate Hikes (2015 - 2018): As the Federal Reserve began to raise interest rates to nearly 2%, Bitcoin's return saw fluctuations. Although the correlation surged in 2017, it remained relatively low overall, indicating a certain disconnection between Bitcoin and macro policies.
· Loose Policy + Interest Rate Cuts (2018 - 2022): In response to the COVID-19 pandemic, aggressive interest rate cuts and fiscal stimulus measures began during this period, followed by two years of nearly zero interest rates. The return rate of Bitcoin varied greatly but leaned towards positive. During this period, the correlation experienced significant fluctuations, rising from below -0.3 in 2019 to +0.59 in 2021, before returning to a nearly neutral level.
· Tightening Policy + Interest Rate Hikes (2022 - 2023): In response to soaring inflation, the Federal Reserve implemented one of its fastest interest rate hike cycles, raising the federal funds rate to over 5%. Under this regime, Bitcoin exhibited a strong negative correlation with changes in interest rates. Influenced by risk-averse sentiment, Bitcoin's performance was weak, especially compounded by unique shocks in the cryptocurrency sector, such as the collapse of FTX in November 2022.
· Tightening Policy + Interest Rate Cuts (2023 - Present): With the completion of three high-level interest rate cuts, we have seen Bitcoin's performance shift from neutral to moderately positive. During this period, some catalytic factors have emerged, such as the U.S. presidential election and shock events like trade wars, which continue to influence Bitcoin's performance. The correlation remains negative but seems to be gradually approaching 0, indicating that as macroeconomic conditions begin to ease, Bitcoin is in a transitional phase.
Although interest rates determine the market backdrop, comparing Bitcoin's relationship with stocks and gold can better reveal its performance relative to major asset classes.
The Relationship Between Bitcoin Returns and Gold and Stocks
Relevance
To determine whether one asset is decoupled from another, the most direct method is to examine the correlation between their returns. Below is a chart showing the 90-day return correlation between Bitcoin, the S&P 500 index, and gold.
Indeed, we see that the correlation of Bitcoin with gold and stocks has historically been at a low level. Generally, Bitcoin's returns tend to fluctuate between correlations with gold or stocks, with a higher correlation usually with gold. It is noteworthy that as market sentiment heats up, the correlation of Bitcoin with the S&P 500 index increased in 2025. However, starting around February 2025, the correlation of Bitcoin with gold and stocks both tended to zero, indicating that Bitcoin is in a unique phase of "decoupling" from gold and stocks. This situation has not occurred since the peak of the previous cycle at the end of 2021.
What usually happens when the correlation is so low? We have organized the periods when the rolling 90-day correlation of Bitcoin with the S&P 500 Index and gold fell below a significant threshold (around 0.15), and marked the most noteworthy events at that time.
The period of low correlation between Bitcoin and the S&P 500 index
As expected, the decoupling of Bitcoin from other assets has occurred during significant shocks in the cryptocurrency market, such as China's ban on Bitcoin and the approval of Bitcoin spot ETFs. Historically, periods of low correlation typically last around 2 to 3 months, although this depends on the correlation threshold you set.
These periods indeed come with moderate positive returns, but given that each period has its unique characteristics, please carefully consider these unique aspects before drawing any conclusions about Bitcoin's recent performance. That said, for those looking to allocate a substantial amount of Bitcoin in a risk-diversified portfolio, Bitcoin's recent low correlation with other assets is an ideal characteristic.
Market Beta Coefficient
In addition to correlation, the market beta coefficient is another useful indicator for measuring the relationship between asset returns and market returns. The market beta coefficient quantifies the extent to which an asset's expected return will change with fluctuations in market return, calculated as the sensitivity of the asset's return minus the risk-free rate relative to a benchmark. Correlation measures the direction and strength of the linear relationship between an asset and the benchmark return, while the market beta coefficient measures the direction and magnitude of an asset's sensitivity to market fluctuations.
For example, it is often said that Bitcoin has a "high beta coefficient" compared to the stock market. Specifically, if an asset (such as Bitcoin) has a market beta coefficient of 1.5, then when the market benchmark asset (the S&P 500 index) moves by 1%, the expected return of that asset will change by 1.5%. A negative beta coefficient means that when the return of the benchmark asset is positive, the return of that asset is negative.
For most of 2024, Bitcoin's beta coefficient relative to the S&P 500 index was well above 1, indicating that it is highly sensitive to fluctuations in the stock market. In an optimistic, risk-seeking market environment, investors holding a certain proportion of Bitcoin achieved higher returns compared to those who only held the S&P 500 index. Although Bitcoin is often labeled as "digital gold," its low beta coefficient relative to physical gold suggests that holding both assets can hedge against the downside risks of each asset.
As we enter 2025, the beta coefficient of Bitcoin relative to the S&P 500 index and gold begins to decline. Although the dependence of Bitcoin on these assets is decreasing, Bitcoin remains sensitive to market risk, and its returns are still correlated with market returns. Bitcoin may be becoming a unique asset class, but its trading behavior largely still resembles that of risk-appetite assets, and there is currently no strong evidence to suggest that it has become a "safe-haven asset."
Bitcoin Performance During High Volatility Periods
The realized volatility provides another dimension for understanding the risk characteristics of Bitcoin, measuring the range of price fluctuations over a period of time. Volatility is often considered one of the core features of Bitcoin, serving as both a driver of risk and a source of returns. The chart below compares the 180-day rolling realized volatility of Bitcoin with the volatility of major indices such as the Nasdaq Index, the S&P 500 Index, and some technology stocks.
Over time, the volatility of Bitcoin has shown a downward trend. In the early stages of Bitcoin, driven by significant price surges and pullback cycles, its realized volatility often exceeded 80%-100%. During the COVID-19 pandemic, Bitcoin's volatility rose alongside stock volatility, and during certain periods in 2021 and 2022, it independently increased due to unique shocks in the cryptocurrency space, such as the collapse of Luna and FTX.
However, since 2021, Bitcoin's 180-day realized volatility has gradually decreased, recently stabilizing around 50%-60% even in a highly volatile market. This volatility is comparable to that of many popular tech stocks, lower than MicroStrategy (MSTR) and Tesla (TSLA), and very close to NVIDIA's (NVIDIA) volatility. Although Bitcoin remains susceptible to short-term market fluctuations, its relative stability compared to past cycles may reflect its maturity as an asset.
Conclusion
Has Bitcoin decoupled from other parts of the market? It depends on how you measure it. Bitcoin is not completely unaffected by the real world. It is still subject to the market forces that influence all assets: interest rates, specific market events, and the returns of other financial assets. Recently, we have seen a disappearance of correlation between Bitcoin's returns and other parts of the market, but whether this is a temporary trend or part of a long-term market change remains to be seen.
The decoupling of Bitcoin raises a bigger question: what role can Bitcoin play in a portfolio that seeks to diversify risk? The risk and return characteristics of Bitcoin can be confusing for investors; one week it may resemble a highly leveraged Nasdaq index, the next week it acts like digital gold, and then it becomes a tool for hedging against the devaluation of fiat currency. But perhaps this volatility is a feature rather than a flaw. Rather than making imperfect comparisons of Bitcoin to other assets, a more constructive approach is to understand why, as Bitcoin gradually evolves into a unique asset class, it will develop its own market.
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