To The Moon

With SEC announcing the approval of some Spot Blockchain ETF after market close yesterday (10 Jan 2024), we should see more institutional adoption.

What we have seen so far, institutional adoption has driven higher correlations between crypto and other risk assets. Most crypto evangelists have had a long-standing infatuation for correlation, or the absence of it.

Bitcoin had been touted as a safe haven asset, uncorrelated from traditional stocks, bitcoin is supposed to be a hedge against the excesses of Wall Street. Correlation have been used as a historical indicator by nature.

Investors have used correlations to keep them informed about the relationship between financial assets and indices. If the price of two assets rises in lockstep, they are said to be positively correlated, with a correlation of 1 indicating a perfect positive correlation. The inverse, a correlation of -1, would represent a perfect negative relationship.

If we were to look at a portfolio with Bitcoin inside, this promise the investors the diversification from traditional stocks. From 2010 to 2020, strong crypto believers finally got what they wish for, we can see that Bitcoin's correlation to the S&P 500 remained at negative or low positive levels, indicating that bitcoin did not sing to the tune of conventional assets – a win for the evangelists.

Things have changed since COVID-19, as seen in the chart below, data from CryptoCompare and Yahoo Finance show that the Bitcoin's correlation to the S&P 500 and Nasdaq 100 shooting from a negative correlation of -0.15 to a positive 0.31 at the beginning of January 2024.

As bitcoin's correlation has surpassed a value of 0.5 – a strong positive correlation – and the ‘decoupled-safe haven’ hypothesis remains on hold, what can correlations tell us about crypto investors, the current market regime and the future of the industry.

Data from Glassnode indicates that the fledgling bitcoin market was dominated by small, tech-savvy and risk-on merchants, who peddled bitcoin in transactions totalling no more than $1,000.

We saw crypto became more institutionalised after the 2017 crash. It made headlines and this was the first time mainstream people really heard of bitcoin. One good example of institutional investors piling assets into Bitcoin would be by MicroStrategy, as MicroStrategy founder Michael Saylor said “bitcoin is digital gold” before purchasing $4bn worth of bitcoin and Elon Musk announced that Tesla would accept bitcoin as payment following a $1.5bn bitcoin binge.

As seen in the chart above, as of 10 January 2024, we could see the correlation of Bitcoin vs Gold and S&P 500 remains above 0.30.

Bitcoin vs Crypto Mining Stocks Performance

As we can see not all crypto mining stocks are performing better than Bitcoin, only $Marathon Digital Holdings Inc(MARA)$ $Bit Digital, Inc.(BTBT)$ $Riot Blockchain, Inc.(RIOT)$ has performance better than Bitcoin in 2024 (data is collected as of 10 Jan 2024).

But that does not mean that the other crypto mining stocks would not perform better as we will see how the newly approved Spot Bitcoin ETF helped these crypto mining stocks.

Summary

Based on what we have observed so far, it looked like correlations do have some direct effect to crypto mining stocks.

With the newly approved Spot Bitcoin ETF, we shall see whether we will notice any change in the correlations for these crypto mining stocks with relation to Bitcoin.

Appreciate if you could share your thoughts in the comment section whether you think Spot Bitcoin ETF would have some effect on the Bitcoin vs Crypto Mining stocks correlation.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.