2022 update: How correlated is crypto to stocks?

There has been a lot of debate recently about crypto, especially bitcoin, as a hedge against inflation and as a way to diversify one’s portfolio. Doubtlessly, this emerging asset class is picking up momentum among everyday and institutional investors alike, but how much is it really “uncorrelated” compared to the stock market?

We decided to look at this through a very simple metric:

How often (% trading days) do bitcoin/crypto and stocks move together — either both up or both down?

This view is slightly different from how a correlation is typically defined (a number between -1 and 1), but it seems to be intuitive and relevant for investors, who are asking How likely am I gonna be making/losing money on bitcoin/crypto on the day I am making/losing money on stocks?

BTC/ETH and S&P move together ~56% of days

From 2019 to today, prices of BTC and S&P500 moved in the same direction (both up or down) on 56% of trading days and in opposite directions on 44% of days.

The same holds true for Ethereum: Since 2019, ETH and S&P500 moved in the same direction (both up or down) on 57% of trading days and in opposite directions on 43% of days.

On an intuitive level, this number feels reasonably uncorrelated. On any given day, the chance that BTC or ETH and S&P500 will both go up or both go down is reasonably close to randomly flipping a coin (56-44 vs. 50-50 for a perfect coin toss).

However, an interesting pattern emerges when we look at this data by each year 👇

It seems that BTC tends to move more together with S&P500 now (64% of days in 2022) than it did in the past (51% of days in 2019). Perhaps this is a consequence of several black swan events, such as COVID-19 and the war in Ukraine, where the macro momentum took over everything else. Bitcoin is still “the face” of crypto for mainstream users, after all.

Gold and S&P500 move together 50% of days

We were curious to see how BTC and ETH compared to gold, which has historically been perceived as a great hedge against the stock market downturn.

Since 2019, prices of gold (here approximated by GLD: Gold ETF) and S&P500 moved in the same direction on 50% of trading days between 2019 and today (March 2022). This is as close to a perfectly uncorrelated behavior as one can imagine, at least on paper.

That being said, we can see the same trend (% increasing over time) for gold between 2019 and 2021. In 2022, this trend seems to reverse. I hypothesize that this is due to the overall momentum in the commodities market + some spillover effect, but I would love to hear an alternative and better explanation!

How about SOL and LUNA and S&P500?

Unfortunately, we don’t have 3+ years of historical data for Terra Luna and Solana, so the straight-up comparison may not be quite appropriate. At first sight, it seems that SOL tends to move with the stock market a bit more than other tokens, and LUNA a bit less so. However, we’d need more data to be comfortable drawing any conclusion.

Run this analysis for any crypto

If you want to check any other cryptocurrency and see how it moves together with S&P500, gold, or anything else, you can just modify our queries and run the exact same analysis. Just click on any chart, go to the source, and start editing (it will "fork" a new query just for you).

Factor supports data for over 350 cryptocurrencies and thousands stocks, so you can check practically  "anything against anything". If you need help with modifying the query, just Tweet at @FactorAnalytics!

Disclosures

We got inspired by Ben Gilbert from the Acquired podcast who framed his question in a similar manner:

Luckily, we didn't have to spend $25K on a Bloomberg terminal to find the answer!

Comments? Corrections? Let us know!  👉 Twitter |  Discord

Factor.fyi is an open BI platform to query and share financial and macro data.