By Denis Zinoviev, Associate Product Manager, ETFs, VanEck
- Historically, bitcoin’s correlation to traditional asset classes has been very low.
- Lately, its correlation has been rising. In fact, 2020 is the highest year on record for bitcoin’s correlation to traditional asset classes.
- This rise in correlation may be a result of its increasing adoption, as evidenced by record volumes traded, the rise in OTC-traded bitcoin funds and an increasing number of payment networks enabling bitcoin and digital asset buying and selling on their networks.
Throughout most of its history, bitcoin has maintained a low correlation to traditional asset classes, including broad market equity/bond indices and commodities like oil and gold. The uniqueness of bitcoin’s price actions has historically made it an attractive tool for portfolio diversification.
| Correlation 2/1/2012 to 12/31/2020 |
S&P 500 | U.S. Bonds | Bitcoin | Gold | U.S. Real Estate |
Oil | Emerging Market Currencies |
| S&P 500 | – | -0.25 | 0.01 | 0.02 | 0.73 | 0.34 | 0.30 |
| U.S. Bonds | -0.25 | – | 0.02 | 0.28 | 0.04 | -0.15 | 0.10 |
| Bitcoin | 0.01 | 0.02 | – | 0.00 | 0.01 | 0.03 | -0.01 |
| Gold | 0.02 | 0.28 | 0.00 | – | 0.09 | 0.08 | 0.27 |
| U.S. Real Estate | 0.73 | 0.04 | 0.01 | 0.09 | – | 0.20 | 0.29 |
| Oil | 0.34 | -0.15 | 0.03 | 0.08 | 0.20 | – | 0.22 |
| Emerging Market Currencies | 0.30 | 0.10 | -0.01 | 0.27 | 0.29 | 0.22 | – |
Source: Morningstar. Data as of 12/31/2020. US Bonds is measured by the Bloomberg Barclays US Aggregate Index; Bitcoin is measured by the MVIS CryptoCompare Bitcoin Index; Gold is measured by the S&P GSCI Gold Spot Index; U.S. Real Estate is measured by the MSCI US REIT Index; Oil is measured by the Brent Crude oil spot price, Emerging Market Currencies is measured by the Bloomberg Barclays EM Local Currency Government Index.
2020 was truly a unique year on multiple fronts, and bitcoin was no exception as the price of bitcoin reached new all-time highs. Additionally, bitcoin’s calendar year correlations to traditional asset classes also hit record highs, yet the correlations remain low compared to those between the traditional assets—for example, the S&P 500’s 0.73 correlation with U.S. Real Estate as seen above.
| Calendar Year Correlation to Bitcoin | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 |
| S&P 500 | 0.22 | -0.09 | 0.04 | -0.01 | -0.01 | 0.01 | -0.03 | -0.12 |
| U.S. Bonds | 0.07 | 0.00 | -0.03 | 0.04 | 0.04 | -0.06 | 0.04 | 0.10 |
| Gold | 0.34 | 0.14 | -0.02 | 0.01 | 0.07 | 0.04 | -0.08 | -0.04 |
| U.S. Real Estate | 0.17 | -0.09 | -0.03 | 0.04 | -0.03 | 0.01 | 0.01 | -0.10 |
| Oil | 0.23 | 0.02 | 0.00 | 0.06 | 0.03 | 0.00 | 0.00 | -0.03 |
| Emerging Market Currencies | 0.25 | -0.02 | 0.07 | -0.04 | -0.07 | -0.04 | -0.03 | -0.07 |
Source: Morningstar
Bitcoin future volumes are reaching new all-time highs, trade in many OTC structures, and even payment networks like PayPal are enabling bitcoin buying and selling capabilities on their networks. It remains to be seen whether bitcoin’s 2020 record correlations persist into the future. However, we believe it is likely that its adoption will continue to develop.
Originally published by VanEck, 2/8/21
DISCLOSURES
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
The S&P® 500 Index: a float-adjusted, market-cap-weighted index of 500 leading U.S. companies from across all market sectors. The Bloomberg Barclays U.S. Aggregate Bond TR Index: is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency). The Bloomberg Barclays EM Local Currency Government TR Index: is a flagship index that measures the performance of local currency Emerging Markets (EM) debt. Classification as an EM is rules-based and reviewed annually using World Bank income group, International Monetary Fund (IMF) country classification and additional considerations such as market size and investability. The MSCI US REIT Index: is a free float-adjusted market capitalization index that is comprised of equity REITs and represents about 99% of the US REIT universe and securities are classified in the Equity REITs Industry (under the Real Estate sector) according to the Global Industry Classification Standard (GICS®). It however excludes Mortgage REIT and selected Specialized REITs. The S&P GSCI Gold Index: Is a sub-index of the S&P GSCI, provides investors with reliable and publicly available benchmark tracking the COMEX gold future. The index is designed to be tradable, readily accessible to market participants, and cost efficient to implement. The MVIS CryptoCompare Bitcoin Index measures the performance of a digital assets portfolio which invests in Bitcoin.
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All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
