According to the theory, Bitcoin is a financial asset that is completely separate from the traditional financial system. In practice, the prices of Bitcoin and the major stock exchanges show a high degree of correlation. Now that seems to be slowly changing and Bitcoin is holding up strong, while stocks are struggling.
Time to disconnect?
Cameron Winklevoss, the co-founder of Gemini, also sees Bitcoin moving less and less in tandem with stocks and speaks of a “remarkable decoupling.” It is true what he says that Bitcoin is remarkably stable, while the stock markets are losing trillions in wealth. “I don’t know if this is the bottom, but there is a remarkable disconnect,” Winklevoss wrote.
Compared to last week, Bitcoin is up 3 percent, while the Nasdaq 100 and S&P 500 are both down about 1 percent. Even if we take a three-month period, Bitcoin is up 1 percent, while the Nasdaq 100 lost 3 percent and the S&P 500 even lost 4 percent. Others, contrary to Winklevoss, say that the period is too short to draw any conclusions.
Still a high correlation
For example, if we look at the data from IntoTheBlock, the correlation matrix still shows a correlation of 0.7 between Bitcoin, the Nasdaq 100 and the S&P 500. Calculating the correlation always returns a number between -1 and 1. If there is a correlation of -1, then the assets in question always move in the opposite direction. If Bitcoin rises by 1 percent, the S&P 500 would see a 1 percent decline at a correlation of -1.
In the first week of September, the correlation between Bitcoin and the two stock exchanges was even greater at 0.9. “The correlation with equities has indeed dropped, but is still quite high,” said Lucas Outumuro, director of research at IntoTheBlock. There is also the possibility of a scenario where the correlation picks up again, especially if liquidity in the system continues to decline with new rate hikes that continue to put pressure on risk assets.