Comparing Bitcoin’s performance to a variety of other financial instruments such as the S&P 500, the Bond market, Gold, the NASDAQ, DOW, Silver, or any other more historic market has become a common thing. This is especially true when looking at more mainstream platforms. It has always seemed odd that these comparisons are made. Sure, they’re all investment vehicles, but Bitcoin has only existed since 2008, so how can you really compare its price movements to something like Gold which has been around for much of humanity’s existence?
As we’re going to see, Bitcoin can only really be correlated to any of these markets over short-term periods, and when we zoom out, Bitcoin is in a league of its own. Let’s jump in.
Short-Term vs Long-Term Correlation
As a crypto writer, there was a period of time where I also had to make these comparisons, and I found the same thing that most new sources did and do: Bitcoin can often be correlated to various markets, but only over short-term periods. Short-term periods in this context can be thought of as a year, or two, at most. For much of 2022 and into early 2023, Bitcoin was correlating quite well with tech stocks, but this is no longer the case, at all.
Similarly, when the pandemic hit and all the markets were doing well, Bitcoin was fairly well correlated with the S&P 500, Dow Jones, and NASDAQ, as they were all going up. Again, this is no longer the case. Bitcoin only remains correlated with other markets for so long.
Bitcoin year to date is up almost 80%. By comparison, the NASDAQ is only up about 40%, the Dow Jones is up only 5%, and the S&P is up just under 20%. On the year to date correlation, Bitcoin has essentially none, outperforming all of these other asset classes. Even gold is only up about 9% on the year, making what’s considered digital gold in Bitcoin seem more attractive to investors.
On a zoomed out timeframe, we can see that Bitcoin can’t really be correlated to any of these markets. Let’s use Bitcoin’s price in 2009 compared to today, and compare it to the various markets which Bitcoin is often assumed to be correlated to. The percentage gain that Bitcoin has made since July 2010 to July 2023 is about 52 million percent (52,000,000%). Gold, in the same time, has gone up about 150%. The NASDAQ has been no slouch over the period, with over 1,000% in gains. It’s also perhaps no coincidence that the NASDAQ has increased in value 10x, just as the US Federal Budget has also gone up 10x in the same time.
Bitcoin Can’t Be Correlated
The reality is that Bitcoin can’t truly be correlated to any other market, and isn’t. It hasn’t been around for the same amount of time, it’s a different product with a variety of nuances, and when you look at its performance over its lifetime to any other asset over the same timeframe, there’s no comparison. The scary part of these correlations is we’re not even using Bitcoin’s price at peak to show its growth. Considering Bitcoin was at one point over $60,000 USD, and $30k USD is a 52,000,000% increase, the increase when it was at $60,000 was an absolutely astounding 104,000,000%, but it reached just under $70k.
Though Bitcoin investors are unlikely to ever see that sort of return again, it shows just how strongly Bitcoin has performed over its lifetime. It also shows that you can’t compare it to other markets when trying to decide whether it’s a good time to buy. Perhaps it also solidifies the idea of dollar cost averaging into Bitcoin as an investment strategy.
