These Four Factors Caused 88% of Variance in BTC Price over Last Four Years

Aaron Brown, head of financial market research at AQR Capital Management, estimates that the present price of Bitcoin is around 20% below its historical relation to other market prices. Bitcoin dipped to lows of $18,603 on June 30 before partly recovering to trade at $19,399 at press time.

Four factors—gold prices, stock market volatility, Bitcoin volatility and overall market volatility—have accounted for 88% of the price variation in Bitcoin over the past four years.

Gold price

Bitcoin is correlated to the price of gold. As both gold and Bitcoin may be used to store value untouched by inflation, it is sometimes assumed that this correlation should be positive. However, when other factors are taken into account, there is a large negative correlation. Gold and Bitcoin are opposite solutions to a lack of faith in the currency.

Volatility in tech stocks and Bitcoin

Bitcoin has also benefitted historically from volatility in both tech stocks and Bitcoin itself. Currently, nearly $82,000 of the Nasdaq 100 Technology Index, $21,000 in borrowed money, and $50,000 in borrowed gold make up the proxy portfolio that corresponds to one Bitcoin. The proxy portfolio price, if estimated based on this, comes out to $25,000 versus the current market price of Bitcoin of roughly $20,000.

In this sense, Bitcoin appears to be "cheaper." Except for the spike in March 2021, the proxy portfolio has done a respectable job of following Bitcoin prices since 2018.

General market volatility

Bitcoin has some option-like characteristics, so its price rises when the market is volatile. The Nasdaq index volatility add-on is now worth $8,000 at this time. Bitcoin prices might rise by around $4,000 if index volatility increases by 50% and fall by $4,000 if volatility decreases by 50%. If Bitcoin volatility increases or decreases by 50%, there might be a $3,000 gain or loss in the price of one Bitcoin if there is a $6,000 add-on for Bitcoin volatility.