Crypto’s New Normal: Understanding the Positive Correlation with Stocks

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The cryptocurrency market has finally found some stability after a tumultuous few months. Bitcoin, in particular, has been on a rollercoaster ride since reaching an all-time high earlier this year. Meanwhile, Ethereum has seen significant gains with the rollout of spot Ether ETFs, following the Securities and Exchange Commission’s (SEC) approval in late May.

As investors navigate this new landscape, IDX Advisors’ Chief Investment Officer, Ben McMillan, shares his insights on the crypto market’s outlook, including the impact of ETF inflows and the views of traditional investors like Peter Thiel.

Bitcoin’s price volatility has been a major concern for investors.

“The correlation of Bitcoin to stocks in general was very low pre-COVID,” McMillan explains. “But after the pandemic, particularly with the ‘money printing’ that followed, we saw that correlation spike. And that makes a ton of sense. We think that’s here to stay.”

McMillan’s comments highlight a crucial shift in the crypto market. The positive correlation between Bitcoin and stocks is no longer a temporary phenomenon, but a new normal that investors need to factor into their portfolios.

The stock market’s influence on Bitcoin’s price cannot be ignored.

“It’s running at kind of a 0.6 correlation,” McMillan notes. “But we’re not going to go back to the days of Bitcoin being zero or even negatively correlated to risk assets. So… investors need to understand that positive correlation to risk assets of Bitcoin is here to stay.”

As the crypto market continues to evolve, investors would do well to heed McMillan’s advice. With the 2024 election on the horizon, it remains to be seen whether President Biden or former President Trump will be able to win over the crypto crowd.

The 2024 election could have a significant impact on the crypto market.

One thing is certain, however: the positive correlation between Bitcoin and stocks is here to stay, and investors need to adapt to this new reality.

The future of Bitcoin is closely tied to the stock market.