Macro Will Matter (More) To Bitcoin
2021 has proven to yet again be an exciting year for bitcoin[1] investors. The nascent asset (yes, I believe it’s still early) has risen to a market cap just under $1 trillion while notching a +100% return along the way.
Over the course of the year, bitcoin has undergone increased institutional adoption, the launch of a futures ETF, and the first major upgrade to the Bitcoin network in four years. The path forward has been anything but smooth as bitcoin investors have consistently weathered periods of gut-wrenching volatility. For some traders, this is an attractive feature of the asset, they eat volatility for breakfast. For others, it’s enough to keep their capital away entirely.
BTC/USD vs SPY Relative Performance 1Y
Source: Koyfin
Bitcoin’s volatility is likely to dampen over time, but it’s not going away. The future of crypto is tethered to technological advancements, and higher prices likely hinge on exponential network growth, making the task of forecasting a specific price target a difficult endeavor. Regardless, as bitcoin undergoes further institutional adoption as an asset class, its returns will likely become more of a function of the current macro regime. Hence, without a view of cross asset class relationships and an understanding of where we are in the economic cycle, you might be trading in the dark.
Cross Asset Correlations
When looking at bitcoin’s historical correlations with traditional assets, there’s a positive relationship with the S&P 500[2], as well as commodities such as gold[3] and crude oil[4]. This trend in correlations among bitcoin and equities has also been strengthening for much of the year.
BTC/SPY 21-Day Rolling Correlation
Source: Koyfin
This could be further evidence
