According to a report from K33, a crypto market research firm, there is a declining correlation between bitcoin and stocks, which provides a good reason for investors to include the asset in a diversified portfolio. Their data shows that the 30-day price correlation between bitcoin and the tech-heavy NASDAQ index has fallen to its lowest level since December 2021. The correlation between bitcoin and the S&P 500 index has also dropped significantly since late 2021.
The appeal of bitcoin has been its independence from other investment classes, particularly equities. Last year, however, the crypto market plummeted in tandem with stock exchanges. Central banks around the world hiked interest rates to combat inflation, yet BTC and stocks still declined in value. K33 reported that the “perverse focus on growth and wide mania across the financial markets enabled the high correlations”.
K33 suggested that a small bitcoin allocation could improve an investment portfolio. In 2018, prior to the two-year bear market, a portfolio that included 3% bitcoin, 58.5% stocks, and 38.5% bonds performed 6.9% better than a 60% equity, 40% bond portfolio. Moreover, the firm believes that a strategy of active disciplined rebalancing and a minor allocation to bitcoin would improve the overall risk profile of a traditional portfolio.