Bitcoin Surges 36% as Correlation with Stocks and Gold Comes Under Scrutiny

Bitcoin has surged by 36% since August 18, outperforming the S&P 500 and gold over the same period. The SPDR S&P 500 ETF Trust (SPY) returned only 0.05%, while the SPDR Gold Shares (GLD) dropped 1.4%. This significant gap has led to renewed discussions about whether the established correlation between Bitcoin, stocks, and gold is coming to an end.

According to correlation metrics, Bitcoin's performance over the five weeks leading to September 23 shows a rise against a flat stock market and a declining gold price. However, the 90-day correlation shows Bitcoin at a six-year high with gold as of mid-September. Both views have their merits, but the longer 90-day trend presents a stronger case against the shorter five-week divergence.

Three main factors contributed to Bitcoin's impressive rally: Treasury buybacks, short squeezes, and significant institutional investments. The U.S. Treasury doubled its bond buyback program on August 19, injecting cash into the financial system right when the rally began. After that, Bitcoin continued to climb on a series of short squeezes as it broke through resistance levels.

Rising real yields are challenging Bitcoin's rally. The five-year real yield grew from 2.18% on September 1 to 2.65% by September 23. Meanwhile, the nominal five-year yield climbed from 4.55% to 4.99%, reaching its highest level since 2007 at 5.03% on September 24. Since Bitcoin provides no yield, rising safe-asset yields can discourage large investors from holding Bitcoin.