How Bitcoin Correlations Drive the Narrative

Every week there’s usually at least one article in CoinDesk, a blurb in a newsletter and several charts in the Twittersphere about bitcoin’s correlation with something or other.

This week, we were told that the 60-day correlation between gold and bitcoin (BTC) had reached all-time highs. Last week, our monthly report featured a chart of BTC’s correlation with the DXY dollar index. A few weeks before that, the correlation with the S&P 500 was in the headlines.

If you feel dizzy from the rapid turns in attention on which correlation metric matters, you’re not alone. But, you had better get used to it because the fascination with BTC’s correlation status is unlikely to fade any time soon.
What this reveals about bitcoin is intriguing. It’s not so much the correlation measures per se – they are fun to watch go up and down, but they’re not the deeper story. The deeper story is why it matters so much to us.

When we point to BTC’s increasing correlation with the S&P 500, gold, avocados or whatever, we are searching for a handle on its prevailing narrative. We hope that correlations will give us a clue.


BTC is a difficult asset to pin down. It is a scarce asset like gold, yet with a harder cap. It can be used for pseudonymous transactions, as can cash. It is a speculative holding for many, like equities. It is a bet on a new technology, like a growth stock. It is a hedge against a dollar collapse, a way to spread financial inclusion, an investment in financial evolution, a political statement. It is all of these, or none of these, depending on your intellectual leanings, economic philosophy and mood.

The narrative we choose for bitcoin matters, though. Not only does it form our investment thesis around the asset, but it also influences our valuation methods. Do we extrapolate its potential price using the size of the gold market? The payments universe? Transaction fees? Something else entirely?

So, faced with such a slippery narrative, we look to…

Read More