Is Bitcoin Decoupling from the Broader Market?

Author: Tanay Ved, Victor Ramirez, Coin Metrics

Compiled by: Luffy, Foresight News

Key Takeaways:

Bitcoin's recent outperformance relative to gold and stocks has renewed interest in the topic of Bitcoin decoupling from the broader market.

In its 16-year history, Bitcoin has been given many labels, from “digital gold” to “store of value” to “risk-on asset.” But does it really have these characteristics?

Is Bitcoin unique as an investment asset, or is it just a leveraged representation of existing risk assets in the market?

In this analysis, we explore Bitcoin's performance in different market environments.

We also examine the catalysts and conditions behind periods of low correlation with traditional assets such as stocks and gold, assess its sensitivity to the broader market, and analyze its volatility characteristics in relation to other major assets.

Introduction:

As one of the most influential forces in the financial markets, the Federal Reserve has the power to influence interest rates. Changes in the federal funds rate, whether in a tightening or easing monetary policy, directly affect the money supply, market liquidity, and investors' risk appetite.

Over the past decade, we have gone from a zero interest rate era, to unprecedented monetary easing during the COVID-19 pandemic, and now to aggressive rate hikes in 2022 to combat rising inflation.

To understand Bitcoin's sensitivity to changes in monetary policy, we can segment its performance over the past 16 years into five key interest rate regimes. These phases consider the direction and level of interest rates, ranging from accommodative (fed funds rate below 2%) to tight (fed funds rate above 2%). Since interest rate changes are not frequent, we will compare Bitcoin's monthly returns to the monthly changes in the federal funds rate.

While there is generally low correlation and a middle ground in the scatter plot, some clear patterns emerge when we shift in our thinking about policy regimes:

While interest rates set the backdrop for the market, comparing Bitcoin to stocks and gold provides further insights into its performance relative to major asset classes.

Relevance:

The most direct way to tell if one asset is decoupling from another is to look at the correlation between their returns. The chart below shows the 90-day return correlation between Bitcoin and the S&P 500 and Gold.

Indeed, we can see that Bitcoin's correlation with both gold and stocks is historically low. Typically, Bitcoin's returns tend to move more in sync with gold, while its correlation with stocks is lower. Interestingly, Bitcoin's correlation with the S&P 500 increased during the 2024 market rally as sentiment heated up. However, starting around February 2025, Bitcoin's correlation with both gold and stocks has decreased significantly, approaching zero, indicating that Bitcoin is entering a unique stage of "decoupling" from both gold and stocks, a situation not seen since the peak of the previous cycle in late 2021.

When correlations are so low, what usually happens? We collated the periods when Bitcoin's rolling 90-day correlation with the S&P 500 and gold was below the significance threshold (around 0.15) and annotated the most noteworthy events at that time.

Unsurprisingly, past instances of Bitcoin decoupling from other assets occurred during periods of significant shocks to the cryptocurrency market, such as China's ban on Bitcoin and the approval of a Bitcoin spot ETF. Historically, periods of low correlation typically last around 2-3 months, although this depends on the correlation threshold used.

These periods were also accompanied by modest positive returns. However, it's important to note that each period was unique in its own way. Therefore, we need to carefully consider the unique characteristics of these periods before drawing any conclusions about Bitcoin's recent performance.

Nevertheless, Bitcoin's recent low correlation with other assets is a desirable factor for those aiming to allocate a large portion of Bitcoin in a risk-diversified portfolio.

Market Beta Coefficient:

In addition to correlation, another useful measure of the relationship between an asset's return and the market's return is market beta. Market beta quantifies the extent to which an asset's return is expected to move with the market's return and is calculated by subtracting the sensitivity of the asset's return minus the risk-free rate relative to a benchmark. While correlation measures the direction and strength of the linear relationship between an asset and a benchmark's return, market beta measures the direction and magnitude of an asset's sensitivity to market fluctuations.

For example, Bitcoin is often said to have a "high beta" relative to the stock market. Specifically, if an asset (such as Bitcoin) has a market beta of 1.5, then when the market benchmark asset (S&P 500) moves 1%, the return