- The correlation between Bitcoin and stocks witnessed a downward trend post-COVID-19.
- BlackRock advised limiting King Coin exposure to 1% to 3% for risk management.
Bitcoin [BTC] It was always a bit of a mystery. Sometimes they act like risky tech stocks, and other times they have a mind of their own.
It looked like it would follow the stock market in 2023, but things changed in November when the connection with stocks faded. Lately, however, BTC seems to have become more tied to stocks.
Speaking at the Bitcoin Investor's Day conference in New York City, Robert Mitchnick, head of digital assets at BlackRock, said:
“Historically, Bitcoin’s long-term average correlation has been [to stocks] is approaching zero, slightly positive, but close to zero. ”
He further added:
“Just like gold, there were periods when it skyrocketed…In fact, if you look at the correlation charts chronologically, they are surprisingly similar.”
Who is behind the Bitcoin surge?
From 2020 to 2022, Bitcoin and U.S. stocks often moved together, with financial institutions treating the former like a growth stock.
However, this correlation declined last year as multiple bankruptcies occurred in the crypto industry, discouraging speculators.
Now, there are predictions that the correlation between stocks and cryptocurrencies will rise again as more institutional investors flock in, especially with the introduction of Bitcoin exchange-traded funds (ETFs).
In response, Eric Chen, CEO and co-founder of Injective Labs, said:
“When the entire crypto space reaches a certain value, it naturally becomes part of the portfolios of some large funds.”
Some executives believe ETFs are the driving force behind Bitcoin's surge, while others compare it to a broader macroeconomic-driven rally like that seen in gold prices.
Emphasizing the same, Mr. Mitchnick elaborated:
“Bitcoin has one fundamental macro variable that is highly correlated with stocks: significantly shorter real interest rates and longer-term inflation expectations.”
Amid heightened speculation, BlackRock has proposed capping its exposure to Bitcoin to between 1% and 3% for effective risk management.
Bitcoin revival
In conclusion, despite volatility in BlackRock Bitcoin ETF inflows, Bitcoin soared above $70,000, reflecting continued market optimism.
The massive accumulation of Bitcoin by major investors totaling over 51,959 BTC (according to Santimento) in one day underscores this positive sentiment.
However, it is still important to prioritize liquidity for stablecoins like Tether [USDT] and US dollar coin [USDC] To maintain trading activity.
