Does bitcoin act like digital gold? Embarrassingly, it moves in close correlation with risky stocks

A correlation analysis shows that US stocks and bitcoin are moving more in lockstep, with the link between the two assets at the strongest level in a year

One explanation is simply that bitcoin remains a volatile investment – meaning that when investors start to de-risk, they start dumping cryptocurrencies

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Published: 2:33pm, 21 Sep 2021Updated: 2:33pm, 21 Sep 2021

When Wall Street makes the case for cryptocurrencies, it’s all about the benefits of diversification. But when markets go down, bitcoin has an embarrassing habit of getting swept up in the sell-off.

Bitcoin plunged as much as 11 per cent on Monday as stock markets trembled in the wake of a potential default from China Evergrande Group. A correlation analysis shows that US stocks and bitcoin are moving more in lockstep, with the link between the two assets at the strongest level in a year.

One explanation is simply that bitcoin remains a volatile investment – meaning that when investors start to de-risk their portfolios, they start dumping cryptocurrencies.

The current backdrop of big news events explains why bitcoin and stocks are more closely linked, said Vijay Ayyar, head of Asia Pacific with cryptocurrency exchange Luno in Singapore. “There’s a bit of uncertainty in the markets with the upcoming Fed taper talks and meetings,” he added.

Other analysts have said bitcoin is likely to mirror risk-on and risk-off moves as it becomes easier for professionals to access cryptocurrency via futures exchanges and exchange-traded funds. In July, when the S&P 500 sank more than 2 per cent during the day, bitcoin fell about 6 per cent over two days.

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