S&P 500 / Bitcoin Correlation

What It Measures

This chart shows the 90-day rolling correlation between S&P 500 and Bitcoin daily returns. Correlation measures how closely two assets move together. Values range from -1 to +1:

• +1: Perfect positive correlation (always move together)
• 0: No correlation (completely independent)
• -1: Perfect inverse correlation (always move opposite)

Correlation Regimes

• High Correlation (>0.7): Bitcoin behaving like a tech stock or risk asset. Both rise and fall together with liquidity and risk sentiment. Driven by same factors: Fed policy, dollar strength, risk appetite.
• Moderate Correlation (0.3-0.7): Mixed behavior. Some overlap in drivers but Bitcoin has independent dynamics. Typical in most market conditions.
• Low Correlation (<0.3): Bitcoin decoupling from stocks. Behaving more like digital gold or independent asset. Driven by crypto-specific factors (adoption, regulation, halving cycles).
• Negative Correlation (<0): Rare. Bitcoin rising while stocks fall (or vice versa). Often during crypto mania or major stock crashes when Bitcoin is seen as alternative system.

Why It Matters

Bitcoin's long-term value proposition depends on being uncorrelated with traditional assets. High correlation means Bitcoin is "just another tech stock" driven by liquidity and risk appetite. Low correlation suggests it's achieving "digital gold" status as an independent store of value and portfolio diversifier.

The correlation is NOT fixed - it changes based on macro environment, regulatory developments, institutional adoption, and market maturity.

Trading Signals

• Rising Correlation: Bitcoin increasingly driven by stock market factors. Expect Bitcoin to follow equity trends. Risk-on/risk-off dominates.
• Falling Correlation: Bitcoin developing independent narrative. May outperform during stock corrections. Crypto-specific catalysts matter more.
• Correlation Breakdown: Sharp drops in correlation often precede Bitcoin rallies independent of stocks (2019, mid-2020).
• Extreme High Correlation: Bitcoin becomes a liquidity gauge. Fed tightening = both assets fall together. Fed easing = both rise.

Historical Context

Early Bitcoin years (2016-2018): Very low correlation, independent asset.
COVID era (2020-2022): Spiked to high correlation as Bitcoin became "liquidity proxy" with tech stocks.
2022 Fed tightening: Extreme correlation as both crashed together.
Recent trends: Fluctuating as market debates Bitcoin's true nature.

Portfolio Implications

• High Correlation: Bitcoin does NOT provide diversification. Allocating to Bitcoin is similar to adding more tech stocks. Consider reducing exposure if seeking uncorrelated assets.
• Low Correlation: Bitcoin adds true diversification. Can hedge against stock market risk. Allocation makes sense for portfolio construction.
• Portfolio Sizing: Adjust Bitcoin allocation based on current correlation regime. Higher correlation = smaller allocation needed.

Use Cases

• Determine if Bitcoin is acting as risk asset or safe haven
• Assess portfolio diversification benefit of Bitcoin allocation
• Identify periods when Bitcoin may outperform during stock weakness
• Gauge whether crypto or macro factors are driving Bitcoin price
• Time entry/exit based on correlation regime changes