Bitcoin S&P 500 Correlation Analysis: Does It Really Offer Diversification?

[Data Analysis] Bitcoin and the S&P 500: Friends or Competitors?

The synchronization of Bitcoin, once called 'digital gold,' with the U.S. stock market is becoming increasingly clear. Based on data from the past 5 years, we will directly analyze the correlation and Beta of Bitcoin (BTC) and the S&P 500 (SPY) and examine the impact on investment portfolios.

In-depth Analysis of Bitcoin and S&P 500 Synchronization

1. Bitcoin and S&P 500 Correlation Trends

Correlation is a metric that shows how similarly two assets move. Our analysis shows that over the past five years, the correlation coefficient between Bitcoin and the S&P 500 was 0.3444. This indicates a clear positive (+) correlation, meaning the two assets tend to move in the same direction.

Of course, this relationship hasn't always been constant. As you can see in the graph below, at certain times the correlation was very strong, approaching 0.8, while at other times it neared 0, with each asset following its own path.

▲ Correlation trends of 'BTC' and 'SPY' (30-day moving average)

These changes show that investors' perception of Bitcoin has been continuously shifting in response to institutional adoption, such as the launch of a spot Bitcoin ETF, and macroeconomic conditions. Contrary to past expectations as a 'safe haven asset,' the current market tends to view Bitcoin as a risk asset similar to tech stocks.

Below is a post with a description and download link for the correlation and beta analysis program used in this analysis. Please refer to it.

▶ Go to the article on the correlation and beta analysis program

---

2. Beta Analysis: Which Has Higher Market Sensitivity?

Beta is an indicator that shows how sensitively a particular asset responds to the overall market movement. When the beta of a market index (S&P 500) is considered to be 1, a beta value greater than 1 means the asset has higher volatility than the market.

The analysis results for each asset's beta were as follows:

• Bitcoin (BTC) Beta: 1.21
• S&P 500 ETF (SPY) Beta: 1.01

It's natural for SPY's beta to be close to 1, as it is the market benchmark. What's notable is that Bitcoin's beta is 1.21. This means that when the S&P 500 index rises by 10%, Bitcoin rises by an average of 12.1%, and conversely, when the index falls by 10%, it falls by 12.1%. This clearly shows that it is an asset with higher volatility than the market.

This high beta value clearly demonstrates Bitcoin's characteristic as a 'high-risk, high-return' asset, recording higher returns in bull markets and deeper losses in bear markets.

---

3. Conclusion: Investment Strategy in an Era of Synchronization

Through data analysis, it was confirmed that Bitcoin and the U.S. stock market have shown a clear positive correlation over the past five years, and Bitcoin is an asset with higher volatility (beta) than the market. This change in the relationship offers important implications for investors.

1. Re-evaluating Diversification Effects: The effectiveness of a strategy to include Bitcoin in a portfolio as a means to hedge against stock market risk has decreased compared to the past.
2. Understanding as an 'Amplified Risk Asset': Bitcoin tends to follow the market's direction while amplifying its movements, so investors must clearly recognize their risk tolerance and adjust their investment proportion.
3. Importance of Macroeconomics: Investing in Bitcoin has now become an asset where one must also consider macroeconomic indicators such as interest rates and inflation, and the flow of the U.S. stock market.

Key Summary:
Rather than seeing Bitcoin as a 'blind alternative asset,' an investor should understand its relationship within the overall market trend and devise a strategy to wisely utilize its high volatility.

The content of this blog is for reference in making investment decisions only, and investment decisions should be made based on individual judgment and responsibility. Under no circumstances can the information in this blog be used as evidence of legal liability for investment outcomes.