Bitcoin's Decade-Low Correlation with S&P 500 Doesn't Mean Safety

A recent report from Bitwise found that Bitcoin and the S&P 500 have hit a decade-low correlation of -0.62, but an analysis of daily data reveals a more complex relationship between the two assets.

According to CryptoSlate's calculations using FRED data, while the log-level correlation between Bitcoin and the S&P 500 was -0.6161 over a 260-day period, the return correlation was +0.40 over the same time frame.

This means that while the price paths of the two assets diverged over the medium term, they still tended to move together in terms of returns.

In fact, when equities fell on 115 common dates across the 260-return sample, Bitcoin fell on 76 of them and averaged a 1.03% decline. When the S&P 500 fell by more than 1%, Bitcoin declined on 22 out of 25 observations and averaged a 2.59% loss.

This suggests that investors holding both assets cannot assume that one will offset the other in times of stress, as negative trend correlation coexisted with repeated losses in both assets.