Over the past ten years, Bitcoin has become increasingly tied to the US stock market, and this link has now reached an all-time high. For investors, this is a serious risk: during a stock sell-off, the first cryptocurrency is likely to fall in price as well and cease to serve as portfolio protection.
The upside for holders is that when stocks rise, the cryptocurrency appreciates along with them, and the inflow of professional money makes the market more mature. The downside affects both retail investors and companies with Bitcoin on their balance sheets: the coin is increasingly dependent on Wall Street sentiment and is losing its reputation as an independent investment.
Why BTC increasingly moves in tandem with stocks
The comparison of BTC and S&P 500 returns was carried out using a Z-score — a metric reflecting the deviation of the current value from the usual norm. Correlation was measured in a rolling 90-day window to smooth out random fluctuations. The cumulative indicator sums up all deviations since 2015 and shows the overall trend.
A value above zero indicates that BTC is more strongly linked to the stock market than usual, below zero — less so. The cumulative indicator has been steadily rising from its low despite several pullbacks. It has now exceeded zero for the first time since 2015 and reached 98.5.
The number itself means little, but crossing zero is symbolic: the cryptocurrency is increasingly moving in the same direction as stocks — both on the way up and on the way down. At the same time, the link has been strengthening more slowly lately. After a recent peak, the 90-day indicator dropped to +6.3%, so correlation remains above average but is no longer growing as fast.
The shift is explained by the market maturing. Bitcoin has become far more accessible to financiers after the launch of exchange-traded funds (ETFs), as well as thanks to exchanges, over-the-counter venues, and custody services for large clients. Professional participants are increasingly using the coin as an ordinary financial instrument.
How the link to the stock market manifests now
Since the start of the year, the cryptocurrency has lost about 12%, while the S&P 500 has gained the same amount, but this does not contradict the conclusions about correlation: it reflects the synchronicity of fluctuations, not identical returns, so in this picture BTC can serve as an early signal for stocks.
Common macro factors affect both markets at once. A telling example: BTC returned above $80,000, while WTI crude fell to $93.54 after the Democrats' victory in the US congressional elections. Investors expect the new Congress to reduce US involvement in the conflict with Iran, which had been driving up fuel prices and accelerating inflation.
Because of this rally, those who bet on a decline suffered the most: within a day by the morning of November 5, liquidations on the crypto market reached $974.8 million, of which 59% were short positions. The more closely the cryptocurrency is tied to stocks, the more often sharp price swings will be triggered by external news. Leveraged traders will have to monitor macroeconomics no less than the crypto market.
Cryptalist analysis: Bitcoin's transformation from "digital gold" into a high-beta asset continues to gain momentum, and the institutional inflow through ETFs only reinforces this trend. For portfolio managers, this means that BTC no longer works as a reliable diversifier during periods of stress in stock markets. Investors should reconsider Bitcoin's role in hedging strategies, relying on correlation analysis and macro scenarios rather than on the historical reputation of an independent asset.