ns between bitcoin and 16-3 August 2022 )
Chapter 3 : Crypto investing Chart 4 : 30-day rolling correlations between bitcoin and Nasdaq
e by dollar amount 18 )
Source : 21Shares
Source : Glassnode that the fledgling bitcoin market was dominated by small , techsavy and risk-on merchants , who peddled bitcoin in transactions totalling no more than $ 1,000 . Between 2010 and 2012 , bitcoin ' s correlation to the S & P 500 averaged -0.25 , a moderate negative correlation , according to numbers from TradingView .
This lack of association did not go unnoticed and so the institutions joined .
According to Grayscale ' s firstever Digital Asset Investment Report , institutional investors accounted for 56 % of all inflows in 2018 . Glassnode captures this growth in institutionalisation , with investments of $ 1m or more accounting for 28 % of the market by 2018 .
“ Crypto became more institutionalised after the 2017 crash . It made headlines and this was the first time mainstream people really heard of bitcoin ,” Clara Medalie , research director at Kaiko , told ETF Stream .
Enthused by the seemingly unrelated nature of bitcoin and its proposition as a diversified asset , a report published by Fidelity Digital in 2020 , titled Bitcoin Investment Thesis , claimed : “[ Bitcoin ] could be a potentially useful and uncorrelated addition to an investor ' s portfolio .” The report quoted Chamath Palihapitiya , CEO of Social Capital , who said : “ Bitcoin to me is the only thing that I have seen so far that is really fundamentally uncorrelated .”
In line with this thesis , investors began piling assets into bitcoin . MicroStrategy founder Michael Saylor said “ bitcoin is digital gold ” before purchasing $ 4bn worth of bitcoin and Elon Musk announced that Tesla would accept bitcoin as payment following a $ 1.5bn bitcoin binge . However , bitcoin did not continue to exhibit low levels of correlation . Instead , just as institutional money started to trickle in 2018 , bitcoin ' s correlation to the Nasdaq narrowed to 0.12 , a low positive correlation .
A ‘ new breed ’
Source : CF Benchmarks , ETF Stream
Locked at home , with too much time on one ' s hands , a constant stream of government relief money and in shock by the market crashes in March 2019 and June 2020 , the COVID-19 pandemic ushered in profound changes to retail and institutional crypto engagement .
Between January 2020 and June 2020 , bitcoin ' s correlation to the Nasdaq rose from -0.1 to 0.801 , from a negative to nearperfect positive correlation . Today , bitcoin ' s correlation to the Nasdaq is as high as 0.66 .
Sui Chung , CEO of CF Benchmarks , told ETF Stream : " The reason correlations move higher is because the same type of investor begins to invest in two different assets . So , if you take that as market maturation , correlations will start to look very similar .”
For the people , by the people , perhaps the first place to look when trying to understand the correlation regime change is the change in
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