The correlation between Bitcoin and the U.S. stock market is indeed noteworthy in 2023. Although this connection exists, the logic behind it is somewhat different.
First, the two seemed to have a common logic when they rose in the past, that is, the market was full of funds. However, this time the rise of Bitcoin has a different logic behind it from the traditional market, that is, to fight inflation. Investors in the Bitcoin market are mainly looking for an asset that can preserve value in an inflationary environment. In contrast, the U.S. stock market focuses more on the logic of economic recovery. The U.S. stock market is largely supported by certain large stocks, especially technology stocks, while other stocks have performed mediocrely.
In addition, there is a common logic when the market falls. Inflation may cause the Federal Reserve to adopt a tightening policy, the market's tolerance for risk will decrease, and funds will flow to relatively low-risk assets. This situation is reflected in both the cryptocurrency market and the U.S. stock market.
However, the reality is more complicated, and there are two mainstream views on the interpretation of correlation. The first view is that when the market is full of volatility and uncertainty, seemingly unrelated asset classes may show higher correlation. This is not only reflected between Bitcoin and US stocks, but also includes assets such as gold and bonds, which have also shown an increased correlation with the US stock market in recent years.
The second view focuses more on the maturity and penetration of the cryptocurrency market. With the participation of more and more mainstream investors and the influence of policies and regulations, the correlation between the cryptocurrency market and the traditional market may become the norm.
I personally prefer the second view. I think Bitcoin still has its own independent market logic, but the volatility of investment sentiment may have led to an increase in correlation with the U.S. stock market in certain periods. This diversity of correlation is common in the market, and they are usually the result of the interweaving of multiple factors.
