In a recent post on the X social media network, Fidelity executive Jurrien Timmer has revealed that Bitcoin, the top cryptocurrency by market capitalization, now has "a mostly negative correlation" with the S&P 500, one of the benchmark US stock market indices.
"A note for anyone in the 60/40 realm who has Bitcoin on the menu is that its correlation to equities has come way down, as has its annualized volatility," Timer wrote on X.
The negative correlation means that Bitcoin is a much more attractive option for diversifying one's portfolio. It also makes it more challenging for cryptocurrency traders to decipher price moves since Bitcoin might not move in tandem with stocks based on macroeconomic data.
Alex DovbnyaIn 2022, the largest cryptocurrency plunged in tandem with equities as the US Federal Reserve rushed to raise interest rates in order to tame out-of-control inflation. In March 2022, for instance, Bitcoin's correlation with the S&P 500 surged to nearly 0.50, the highest level since 2020. This, of course, was a major setback for those who were promoting Bitcoin as a powerful portfolio diversifier that can move independently from traditional asset classes. The "inflation hedge" narrative also attracted a lot of ridicule from Bitcoin skeptics since the largest cryptocurrency was acting like a typical risk-on asset.
However, this correlation started to decline in 2023. In March 2023, research firm K33 said that this was making Bitcoin a more appealing investment option since the flagship cryptocurrency was capable of acting as a "solid diversifier" once again.
That said, Injective Labs co-founder Eric Chen recently predicted that Bitcoin's correlation with stocks might rise again following the launch of a slew of ETFs earlier this year.
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