Bitcoin’s Correlation to Markets Hits a Record in 2020Denis Zinoviev, Associate Product Manager, ETFsFebruary 08, 2021
- Historically, bitcoin’s correlation to traditional asset classes has been very low.
- Lately, its correlation has been rising. In fact, 2020 is the highest year on record for bitcoin’s correlation to traditional asset classes.
- This rise in correlation may be a result of its increasing adoption, as evidenced by record volumes traded, the rise in OTC-traded bitcoin funds and an increasing number of payment networks enabling bitcoin and digital asset buying and selling on their networks.
Throughout most of its history, bitcoin has maintained a low correlation to traditional asset classes, including broad market equity/bond indices and commodities like oil and gold. The uniqueness of bitcoin’s price actions has historically made it an attractive tool for portfolio diversification.
2/1/2012 to 12/31/2020
S&P 500 U.S. Bonds Bitcoin Gold U.S. Real
Oil Emerging Market
S&P 500 - -0.25 0.01 0.02 0.73 0.34 0.30 U.S. Bonds -0.25 - 0.02 0.28 0.04 -0.15 0.10 Bitcoin 0.01 0.02 - 0.00 0.01 0.03 -0.01 Gold 0.02 0.28 0.00 - 0.09 0.08 0.27 U.S. Real Estate 0.73 0.04 0.01 0.09 - 0.20 0.29 Oil 0.34 -0.15 0.03 0.08 0.20 - 0.22 Emerging Market Currencies 0.30 0.10 -0.01 0.27 0.29 0.22 -
Source: Morningstar. Data as of 12/31/2020. US Bonds is measured by the Bloomberg Barclays US Aggregate Index; Bitcoin is measured by the MVIS CryptoCompare Bitcoin Index; Gold is measured by the S&P GSCI Gold Spot Index; U.S. Real Estate is measured by the MSCI US REIT Index; Oil is measured by the Brent Crude oil spot price, Emerging Market Currencies is measured by the Bloomberg Barclays EM Local Currency Government Index.
2020 was truly a unique year on multiple fronts, and bitcoin was no exception as the price of bitcoin reached new all-time highs. Additionally, bitcoin’s calendar year correlations to traditional asset classes also hit record highs, yet the correlations remain low compared to those between the traditional assets—for example, the S&P 500’s 0.73 correlation with U.S. Real Estate as seen above.
Calendar Year Correlation to Bitcoin 2020 2019 2018 2017 2016 2015 2014 2013 S&P 500 0.22 -0.09 0.04 -0.01 -0.01 0.01 -0.03 -0.12 U.S. Bonds 0.07 0.00 -0.03 0.04 0.04 -0.06 0.04 0.10 Gold 0.34 0.14 -0.02 0.01 0.07 0.04 -0.08 -0.04 U.S. Real Estate 0.17 -0.09 -0.03 0.04 -0.03 0.01 0.01 -0.10 Oil 0.23 0.02 0.00 0.06 0.03 0.00 0.00 -0.03 Emerging Market Currencies 0.25 -0.02 0.07 -0.04 -0.07 -0.04 -0.03 -0.07
Bitcoin future volumes are reaching new all-time highs, trade in many OTC structures, and even payment networks like PayPal are enabling bitcoin buying and selling capabilities on their networks. It remains to be seen whether bitcoin’s 2020 record correlations persist into the future. However, we believe it is likely that its adoption will continue to develop.
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All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
Authored byDenis Zinoviev
Associate Product Manager, ETFs