Frozen out? Bitcoin price correlation to other assets still undefined

A recent report from institutional crypto firm Fidelity Digital Assets concluded that Bitcoin shows very little price correlation to mainstream financial assets, based on data from the past five years.

Over the course of 2020, Bitcoin has gained further adoption into mainstream finance, which logically might impact the asset's correlation or lack thereof.

"The increase in correlation between Bitcoin and other assets was a consequence of a short-term liquidity crisis that impacted many asset classes," Bhutoria explained of the March drop.

"The correlation of all these assets versus one another rose as a result. Regarding Bitcoin, another potential reason could be greater overlap in market infrastructure and between market participants in traditional and digital asset markets."

One particular segment of the report pointed out Bitcoin's lack of correlation to other financial assets, including U.S. stocks and gold.

Using data from January 2015 to September 2020, Fidelity's report concluded that Bitcoin performed differently than mainstream assets, signalling virtually zero correlation to other markets for that time period.

In addition to the March drop, multiple other instances have shown a seeming correlation between Bitcoin and traditional markets, at least at certain points.

"We saw gold drop 30% over the liquidity crisis during the summer of 2008, along with all assets trending to a correlation of 1 during the same time," Pompliano wrote, adding: "Eventually the assets decoupled later on and so history can teach us a great lesson here as well."

Erik Finman, a Bitcoin millionaire who invested in BTC at the age of 12 back in 2011, holds a more tentative approach regarding Bitcoin's lack of correlation possibly changing recently.

Based on all three responses outlined above, Bitcoin seemingly holds at least some correlation to other assets during isolated, short-term events.