Before the pandemic, crypto assets like Bitcoin and Ethereum showed very little correlation with major stock indices. The correlation coefficient of their daily moves was just 0.01, pre-pandemic.  However, that measure jumped to 0.36 for 2020–21 because the assets moved more in lockstep, and thus they were rising together or falling together.

Peter Schiff expressed: “First Bitcoin was a currency, then it was a non-correlated asset, after that it became digital gold, and now it’s a high-beta tech stock. Except Bitcoin is nothing like a tech stock as it’s not a business and can’t earn a profit. Each time Bitcoin fails its pumpers reinvent it.

So, will Bitcoin go up when the stock market crashes? Not necessarily. The supporters of Bitcoin look at BTC as a diversifier in balanced portfolios; however, BTC did not do any better than stocks at the beginning of the coronavirus pandemic.

Reportedly, it has been stated that the price of Bitcoin appears positively correlated with proxies for consumer-price risk like breakeven inflation and crude oil prices and also “frontier” technology stocks, and negatively correlated with real interest rates and the U.S. dollar.

For clarity, Break-even inflation is the difference between the nominal yield on a fixed-rate investment and the real yield (fixed spread) on an inflation-linked investment of similar maturity and credit quality. If inflation averages more than the break-even, the inflation-linked investment will outperform the fixed-rate.

Crude Oil Prices increase when geopolitical turmoil exacerbates concerns over tight energy supply.

Frontier technology stocks are defined as potentially disruptive technologies that can address large-scale challenges or opportunities.

Peter Schiff:  “Since many traders now correctly view Bitcoin as a risk asset and not digital gold, they incorrectly think it’s correlated to other risk assets, like tech stocks. The only other risk assets to which Bitcoin will ultimately prove to be correlated are 17,000 worthless.”

There are graphs and charts pointing to how the correlation between Bitcoin and the stock market is becoming high, particularly over the past couple of hours.

BTC is considered to be a safe haven by those who believe it.  They believe that it will protect their portfolios versus greater uncertainty in the wider market and inflation. However, if that belief should be real, then crypto should be uncorrelated with the stock market.

However, the correlation between BTC and stocks has gone up since 2020. When the correlation was low during the Covid-19 crash, institutional investors jumped in to the coin. They believed it was a safe haven and it was furthered with the narrative of the digital gold.

Nassim Nicholas Taleb expressed: “For a contagion driven asset with no economic anchor such as BTC, a falling price does not make it “cheaper” and more attractive. A falling price makes it less desirable &, paradoxically, more expensive. Why? Because price is its ONLY information.”

However, with the risk of Bitcoin market and the stock market being correlated this narrative is beginning to breakdown. However, it just looks like there is a dire need to protect ourselves against the consequences of inflation and this narrative is rising again.