Bitcoin's Price Surge Raises Questions About Established Correlations

Bitcoin's price has risen by 36% since August 18, outperforming stocks and gold. The SPDR S&P 500 ETF Trust (SPY) returned only 0.05%, while the SPDR Gold Shares (GLD) dropped 1.4% over the same period.

The divergence between Bitcoin's performance and that of stocks and gold has raised questions about whether the established correlation is coming to an end. However, a closer look at the data suggests that this may be a short-term anomaly rather than a genuine shift in the market.

Correlation metrics can vary across different time frames, with a five-week reading differing from a 90-day reading. The 90-day correlation between Bitcoin and gold shows a six-year high as of mid-September, which suggests that the shorter-term divergence may not be indicative of a new trading pattern.

The drivers behind Bitcoin's recent rally include the U.S. Treasury doubling its bond buyback program on August 19, short squeezes as it broke through resistance levels, and significant institutional investments in Bitcoin ETFs. However, these factors have limitations and tend to reverse quickly, which may explain why the correlation with stocks and gold has not held up.