Bitcoin, the largest cryptocurrency by market capitalization, has been on a bullish run in 2024, reaching around $92,000 and up over 115% year-to-date. The total cryptocurrency market has also hit a new all-time high of $3.025 trillion. Bitcoin is often considered a risk-on asset, meaning it is perceived as one of the riskiest assets in the market due to its high volatility and correlation with U.S. equities.
According to Glassnode data, bitcoin’s implied volatility over the past 30 days is around 60%, a decrease from over 100% in 2021. When held in self-custody, bitcoin has no inherent counterparty risk. Despite being a risk-on asset, bitcoin’s correlation with U.S. equities has weakened over time.
In the past five years, bitcoin has shown periods of 1:1 correlation with the Nasdaq Composite, especially in 2021 and 2022. However, since March 2024, the correlation between bitcoin and the Nasdaq has decreased significantly, with a current 30-day correlation of just 0.46, one of the lowest levels in the past five years. This divergence in correlation suggests that bitcoin is starting to trade independently as it becomes a larger asset class.
Furthermore, the correlation between bitcoin and ether, the second-largest cryptocurrency by market cap, has also weakened. While both assets had a 1:1 correlation since 2019, they now only have a 0.35 correlation on a 30-day rolling basis. This indicates that as the market matures, assets like bitcoin and ether may deviate from their previous correlations.
Data from Fidelity shows that bitcoin has the best Sharpe ratio among major asset classes over the past five years, indicating strong performance relative to risk. Additionally, bitcoin has a relatively low correlation of 19% with the S&P 500, further highlighting its unique position in the market.
As bitcoin continues to gain mainstream adoption and recognition as a legitimate asset class, it is expected to trade more independently from traditional equities and other cryptocurrencies. This shift in correlation patterns suggests that investors are starting to view bitcoin as a distinct asset with its own market dynamics.
Overall, the weakening correlation between bitcoin and U.S. equities, as well as between bitcoin and ether, signifies a maturing market where each asset is beginning to establish its own trading patterns. This evolution highlights the growing importance of bitcoin as a standalone asset class with unique characteristics and opportunities for investors.
