A recent analysis by Standard Chartered challenges conventional views on Bitcoin’s role in investment portfolios. Rather than performing as a consistent hedge against traditional financial risks, Bitcoin demonstrates a stronger correlation with tech equities, particularly the Nasdaq, than with traditional safe havens like gold.
This insight encourages investors to reconsider Bitcoin’s function, potentially viewing it more as a technology stock than as digital gold. This shift in perspective could influence how institutional and retail investors alike incorporate cryptocurrencies into their broader investment strategies.
Understanding Bitcoin’s Correlation with Tech Stocks
According to Standard Chartered’s research, Bitcoin’s price movements show a significant correlation with the Nasdaq index. This correlation reached nearly 0.8 earlier in the year and currently sits around 0.5. In statistical terms, a correlation of 1.0 would mean the assets move in perfect lockstep, while 0 indicates no relationship. This places Bitcoin’s behavior much closer to that of high-growth tech stocks than to traditional stores of value.
In contrast, Bitcoin’s correlation with gold has been declining since January, even touching zero at one point and now resting just above 0.2. This weak relationship undermines the popular narrative of Bitcoin as "digital gold" that provides reliable protection during market downturns.
Geoff Kendrick, Global Head of Digital Assets Research at Standard Chartered, noted, "Bitcoin trading is highly correlated to the Nasdaq over short time horizons. This correlation leads to the idea that bitcoin could be included in a basket of large tech stocks."
The "Mag 7B" Index: A Hypothetical Portfolio
To test this theory, Standard Chartered created a hypothetical index dubbed "Mag 7B." This portfolio included Bitcoin alongside six of the "Magnificent 7" tech stocks—Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia—while excluding Tesla.
The results were revealing. Kendrick reported that "Mag 7B has outperformed Mag 7 by about 5% over the period since December 2017." On a calendar year basis, the Bitcoin-inclusive portfolio outperformed the traditional tech basket in five out of seven years, with only a minimal underperformance in 2022.
This outperformance averaged approximately 1% annually above the standard Magnificent 7 portfolio, suggesting that adding Bitcoin to a tech stock allocation could enhance returns without fundamentally altering the risk profile of a technology-focused investment strategy.
Bitcoin's Behavior Compared to Individual Tech Stocks
The analysis further revealed interesting parallels between Bitcoin and specific technology companies. Since the last presidential inauguration, Bitcoin has traded in a similar volatility-adjusted pattern to Nvidia, with both assets down 16% and 12% respectively during this period.
Meanwhile, Tesla's performance more closely resembled that of Ethereum, with both declining approximately 36-38% over the same timeframe. These comparisons suggest that crypto assets may share fundamental drivers with specific types of technology companies rather than moving as a completely independent asset class.
This behavior pattern supports the case for including Bitcoin within the technology allocation of an investment portfolio rather than treating it as a separate hedge category.
The Dual Nature of Bitcoin in Portfolio Construction
Despite its correlation with tech stocks, Kendrick maintains that Bitcoin still retains some hedge properties against traditional finance risks. He suggests that "investors can view bitcoin as both a hedge against traditional finance and as part of their tech allocation."
This dual nature could become increasingly valuable as Bitcoin becomes more institutionalized. The establishment of Bitcoin ETFs and other regulated investment vehicles has made it easier for traditional investors to gain exposure to cryptocurrency without navigating unregulated exchanges.
As Kendrick explains, "As BTC's role in global investor portfolios becomes established, we think that having more than one use will bring fresh capital inflows to the asset."
Current Market Context and Outlook
Bitcoin has faced headwinds in recent weeks, down approximately 5% for the year following increased market volatility triggered by geopolitical developments and policy announcements. However, many investors anticipate potential relief in the second quarter based on Bitcoin's historical correlations.
Two persistent relationships have characterized Bitcoin's long-term performance: its positive correlation with money supply growth (M2) and its negative correlation with the U.S. dollar index (DXY). These fundamental relationships continue to inform analyst projections despite short-term market fluctuations.
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Frequently Asked Questions
How does Bitcoin's correlation with Nasdaq compare to its correlation with gold?
Bitcoin shows a significantly stronger correlation with the Nasdaq (approximately 0.5) than with gold (just above 0.2). This relationship has held for most of the past year, with Bitcoin's correlation to gold even reaching zero at one point while its tech stock correlation approached 0.8.
Should investors still consider Bitcoin a hedge against traditional finance risks?
While Bitcoin retains some hedge properties, Standard Chartered's research suggests it behaves more like a technology stock in most market conditions. Investors might benefit from viewing it primarily as part of their tech allocation while recognizing its occasional hedging capabilities during rare market events.
What was the performance of the hypothetical "Mag 7B" index compared to traditional Magnificent 7 stocks?
The Mag 7B index, which included Bitcoin while excluding Tesla from the Magnificent 7, outperformed the standard portfolio by approximately 5% since December 2017. It delivered better returns in five out of seven calendar years, with only minimal underperformance in 2022.
How does Bitcoin's recent performance compare to individual tech stocks?
Since the last presidential inauguration, Bitcoin's volatility-adjusted performance closely resembled Nvidia's, with both assets down significantly but less severely than Tesla and Ethereum, which showed similar dramatic declines of over 35%.
What are the implications for institutional investors considering Bitcoin allocation?
The research suggests institutional investors might benefit from including Bitcoin within their technology allocation rather than treating it as a separate asset class. This approach acknowledges its correlation with tech stocks while potentially enhancing portfolio returns.
What factors continue to influence Bitcoin's long-term price movements?
Bitcoin maintains two persistent correlations: a positive relationship with money supply growth (M2) and a negative correlation with the U.S. dollar strength (DXY). These fundamental relationships continue to influence its long-term trajectory despite short-term market volatility.