Bitcoin becomes just like everything else on Wall Street as correlation with stocks jumps to 2-year high

Bitcoin’s ties to the performance of U.S. stocks appears to be increasing.

On a 90-day basis, the correlation between the daily percent returns of the cryptocurrency and the S&P 500 is 33 percent, the highest since the cryptocurrency started gaining public attention in January 2016, according to Nick Colas, co-founder of DataTrek Research.

The previous high of the last two years was much lower, at 19 percent, in mid-December 2017, Colas said in a Thursday note. The long-run average for the 90-day correlation is negative 1 percent, his analysis showed.

Colas is one of the earliest Wall Street market strategists to begin writing about bitcoin.

Source: DataTrek Research

Bitcoin soared 2,000 percent in the 12 months through December to well above $19,000, helped by a surge of investor interest and speculation about increased attention from institutions. The world’s largest futures exchange, CME, and its competitor, Cboe, both launched bitcoin futures products in December, making it easier for institutional investors to buy into the cryptocurrency trend.

One of the selling points for investments in cryptocurrencies such as bitcoin has been their lack of correlation to established global financial markets. But as U.S. stocks plunged in the last week, bitcoin did not hold up and actually fell further, briefly below $6,000.

“Bitcoin’s attraction for institutional investors may increase correlation,” Morgan Stanley equity analyst James E. Faucette and his team said in a Wednesday note. “Our conversations with investors certainly give weight to that view—which raises a key question: if Bitcoin correlation with the broader market fully materializes, does that limit its ultimate potential?” […]

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