Originally written May 13th, 2022:
For years, cryptocurrencies have been viewed as an attractive asset class in part due to low correlations with publicly traded stocks. Over certain stretches of time, this low degree of correlation has been apparent. See the inset chart at the bottom right here to see the relationship between Bitcoin and the Nasdaq from March 2021 to February 2022.
However, over the last two months, as the equity market has tumbled, Bitcoin has seemingly developed a (maybe temporary) correlation to the stock market, with an R-squared coefficient of 0.90 to the Nasdaq over all the trading sessions since March 1st.
It wouldn’t be accurate to say that we can fully predict crypto prices by following moves in the stock market, but the recent uptick in correlations is interesting and potentially head-scratching for investors who have followed crypto for its uncorrelated appeal.