A study of historical Bitcoin correlation to the S&P500 – A change of regime since March 2020

Recently we have seen quite a high correlation between risky assets. The macro narrative in the US raised concerns about valuations among different asset classes leading to market corrections in both equities and cryptos. So I have decided to dive into historical correlation figures.

In January 2022, 1M (one month) historical correlation has raised to around 70%, a high number compared to the historical evolution of this number. In the following graph, we have plotted in green this correlation from mid 2015 to 2022. We have also added the log price of bitcoin on the chart.

The correlation scale is on the right side of the graph. The interesting element to notice on this chart is the change of regime from the early 2020. Before this date the correlation was contain between -50% and +50% with frequent sign changes in the parameter. It means that Bitcoin was less correlated to the traditional equity market. Since early 2020, we see that periods where the number has been negative is unfrequent. The correlation has been positive during the last two years with time where it goes to almost 80% during the market crash of March 2020. Note also that it often goes above 40-50%. Here are a summary of correlation statistics before and after march 2020:

After March 2020Before March 2020
Std Dev21.94%25.37%
% of the time correlation is positive89.57% 45.75%
1M Correlation Bitcoin – SP500 statistics

It seems to be a sign of broad adoption of bitcoin as a risky asset like any other one. In the period before 2020, Bitcoin investment hadn’t spread as much and its price variation was less sensitive to the traditional financial market environment. This observation confirms a trend mentioned in recent articles announcing almost 20% of Americans had already invested in Bitcoin. Even if there are still a large number of people not investing in it, it s the beginning of a broad adoption that we are seeing in these figures.

A second important fact to notice is that Bitcoin correlate more to the SP500 index during market crashes. This is something known in traditional financial markets. When the market crashes the sensitivity of risky assets to the reference index tends to go higher. This is a psychological effect of people withdrawing their investment to any kind of risky positions they have. This is the same with bitcoin. If the equity market is losing a couple of percent, people start withdrawing their money from anything volatile (risky) and store them in a safer place. This is why risky assets, or bitcoin and SP500 correlate more in these periods like January 2022.

Do we see the same pattern for Ethereum?

Yes, looks like it is:

After March 2020Before March 2020
Std Dev24.94%22.40%
% of the time correlation is positive86.09%57.31%
1M Correlation Ethereum – SP500 statistics

We are seeing the same pattern here. Ethereum tends to correlate more with equity markets since March 2020. Its mean correlation in the last two years was a bit less than 30%, like bitcoin and much higher than it was before 2020 with 5.2% average correlation between SP500 and ETH. It has been also quite often positive for two years, 86% of the time.

What are your thoughts on this change of regime? Feel free to drop a comment.


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