This is a very convoluted question and often depends on what perspective you take, so first let’s look at an attempt to measure a correlation between the stock market and cryptocurrency.
Bloomberg Report
Bloomberg publishes a monthly report on this issue, and in November 2023 it detailed the correlations between crypto and stocks. The 30-day correlation measurement —which is the coefficient for the MSCI gauge of world stocks with Bitcoin— gave a record-low reading of -2.3. A reading of 1 would indicate assets are moving in a similar pattern, while minus 1 indicates the two important financial commodities are moving in opposite directions.
Historically, the same enthusiasm for both industries is often shared amongst investors as a raising of equities combined with a Federal financial reversal would be seen as the optimum time to be speculative in both industries.
We believe that with Bitcoin rallying at the end of 2023, perhaps a bigger sample size would be more indicative and informative than this 30-day one in those current circumstances.
Scholars Ponder Bitcoin-Stock Market Correlation
Academics have been looking into potential correlations between the two for several years now and those studies have seen models run across the data. At ScienceDirect, they found that there were several spillovers from the stock market to Bitcoin during the uncertain COVID-19 hiatus. Undoubtedly, they concluded that, during periods of uncertainty, correlations between the two will increase.
What Does the Future Hold for Correlations Between the Stock Market and Cryptocurrency?
The future will probably hold more answers to this age-old question, especially given how the cryptocurrency world is about to be populated by the new EFTs (Exchange Traded Funds), which will naturally align the more traditional monetary institutions with the digital de-centralized commodities better than ever before.
We say populated because in previous articles we have looked at how the financial giants of Invesco, Fidelity, and Blackrock, amongst others, were now moving into the sector on the back of the lawsuit brought by Greyscale Vs. SEC (Securities Exchange Commission).
That inevitably means:
- A bigger footfall in cryptocurrency than ever before ( meaning older users stepping into the sphere for the first time).
- Users become active participants, rather than merely spectators.
With that growing trust amongst society illustrated by those financial giants’ confidence, it should act to centralize or stabilize the decentralized cryptocurrency world further. The effect of this we forecast, is to reduce fluctuations in the digital world and slowly bring them more in line with the normal fluctuations of the stock market and other entities that can be affected by the norms of inflation and depression.
Digital Wager Wire Conclusion
Not only are any correlations between Bitcoin and the Stock Market far from the easiest question to answer, but it is also liable to change in the future when you consider that some financial forecasts estimate as much as $10 trillion will flood the cryptocurrency world in EFTs.
Cryptocurrency’s strength and mantra has long been the decentralized nature of the industry, which means investments are volatile and so much more so than traditional bank rates. That has made the industry attractive for shrewd investors and even crypto gamblers, but there can be no doubt: those swings are now slowing down after the boom-and-bust period of 2022. With the EFT monies adding increased volume to the markets, that stability can only be enhanced further.
This brings us back to our original question as to whether there is a correlation between Bitcoin and the Stock Markets, and we believe that if there are any correlations, they will only become stronger over time, given the sheer amounts of EFTs that will be added to the markets shortly.
Therefore, our conclusion at DWW is that the current correlation between the stock market and bitcoin is at its weakest as the Bloomberg report illustrated but the barometer is about to start swinging back at EFTs natural solidify the decentralised monetary system.
