This editorial is from last week’s edition of the Week in Review newsletter. Subscribe to the weekly newsletter to get the editorial the second it’s finished.
Bitcoin rebounded last week, passing above $91,000 for the first time since early March, after previously falling below $80,000 earlier in April. It briefly cleared $94,000, a 25% move off of the April 9 lows. Meanwhile U.S. equities such as the S&P 500 have seen a 14% move up during the same time. This relative outperformance, along with a weakening of how closely the two assets move in tandem, has reignited talks about bitcoin decoupling from equities.
Correlation metrics such as the 30-day Pearson correlation coefficient have been used to support the notion that decoupling is upon us. Arguably, the most important aspect of these correlation indications is the direction of the relationship, for example, one increases, the other increases. A reading near 1 implies they’re moving together; near 0 means they’re moving independently, and -1 means they’re moving opposite directions.
For the past three weeks, the 30-day Pearson correlation coefficient has shown bitcoin and equities transitioning from moving together, to moving independently. The coefficient has been shrinking from above 0.80 at the beginning of April to below 0.35 now.
That said, I take correlation metrics with a grain of salt. Bitcoin’s correlation with equities—particularly benchmark indices like the S&P 500 and Nasdaq—has varied wildly over time. It has exhibited positive, negative, and near-zero correlation at different points in its history.
When people speak of decoupling, I think what they really mean is that bitcoin is finally acting like a safe-haven asset akin to gold, and less like a risk-on asset such as equities.
Depending on your perspective, we’re either already there or getting close.
On the one hand, bitcoin has been by far and away the best-performing asset over the past 10 years – there is no second best. Those who have hodl’d through volatility on any decent amount of time have protected and, in many cases, significantly grown their net worth.
On the other hand, bitcoin’s gut-wrenching volatility during risk-off events still aligns more closely with equities than with traditional safe-haven assets. During market downturns, bitcoin has historically sold off in tandem with risk assets—hardly a reassuring trait for those seeking stability.
I think bitcoin will eventually become a fully-fledged safe-haven asset, but we’re not there yet. Still, with a low enough time preference (and a strong stomach), for example 5 or more years, I think bitcoin already is one.
Other than the safe-haven narrative, I do think there are explanations for Bitcoin’s recent outperformance. One is that corporations have begun to pile into the Bitcoin treasury playbook made famous by Saylor’s Strategy, and shown to be reproducible by Metaplanet. Now, companies are being formed solely to run this business.
The bitcoin spot ETFs continue to provide a firmer floor on the price than the paper-handed crypto native community. U.S. spot Bitcoin ETFs attracted nearly $1 billion in new capital this past week.
Finally, the U.S. shift from crypto antagonism to cooperation is most likely a pro-crypto secular shift that increases U.S. crypto adoption, not to mention provide tailwinds to U.S.-based crypto companies. Of course, bitcoin will be the overwhelming beneficiary of Americans buying crypto assets.
Speaking briefly about non-bitcoin crypto assets, pretty much the entire crypto market went up this week, even ethereum, which gained 11% over the past seven days. SOL is up 13%, DOGE 15%, and LINK 19%. Whether this is a bounce before even further declines, or the beginnings of a risk-on rally is unclear.
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