BTC is not Digital Gold: but seems to be the Ultimate Risk Asset?

By Malik Corbett and Tynan Overstreet

There is a belief in the crypto community that BTC is a non-correlated asset to equities and its price behaves more like physical gold. Hence the moniker: digital gold. However does belief match reality? In the famous words of Jay Z, “men lie, women lie but numbers don’t.” 

So what do the numbers say?  

Below are charts representing realized correlation over a 60 day time window for various macro assets. The trailing correlations is a graphical representation of how correlation change over time, in this case, a 60 day window. So let’s begin to dig into the data.

BTC-USD & GLD 60- Day Trailing Correlation

In the chart above, the yellow dotted line represents the 60-day realized correlation for BTC and GLD starting from ‘2014-09-17’ and ending ‘2020-10-12’. As you can see from the data there was no correlation between the two assets. It’s not until the dreaded Black Thursday of the 2020 Financial Crisis that there seems to be a structural change in correlation between BTC and GLD. On March 12th the correlation between BTC and GLD hit a high of 49.02%. It’s interesting that the narrative of bitcoin has been BTC is digital gold but yet bitcoin hasn’t been correlated with gold for much of its nascent history. Let’s move and see how BTC’s 60-day trailing correlation looks between SPY and QQQ.  

BTC & SPY, BTC & QQQ 60- Day Trailing Correlation

In this chart the blue dotted line represents the BTC and SPY 60-day trailing correlation and the orange dotted line represents the BTC and QQQ 60-day trailing correlation. According to the data there was no correlation with BTC with SPY or QQQ for early years of bitcoin. However there are some interesting observations we can gather from the data. What is interesting is that at the end of 2018 there was a shock in equity markets (SPY, QQQ) and as you can see the correlation between BTC and SPY reached a peak of 40.88% on ‘2018-11-28’ but doesn’t have any significance measure of correlation until Black Thursday (2020) when correlation reached 61.01% between BTC and SPY. Much like gold, bitcoin’s relationship seems to have changed structurally in correlation to SPY and QQQ after the financial crisis of 2020 where correlation has remained elevated for most of the year.

BTC-USD & Dollar Futures Front Month Contract 60- Day Trailing Correlation

Now, the chart above plots the 60-day rolling correlation for BTC and the Dollar Future front-month contract. What’s interesting about this data is that during the periods of market turmoil in equities (SPY, QQQ) the relationship between BTC and DX=F are anti-correlated. For example, in Q4 of 2018, correlation went negative and hit a trough on February 28, 2019 with a -34.19%. Again, on Black Thursday ‘2020-03-12’ correlation between BTC and DX=F hits -28.97%. The data here is not surprising because when there are market shocks investors hide in cash and the data reflects that view. 

BTC-USD & TLT 60- Day Trailing Correlation  

Things get more interesting when we look at BTC and TLT, which is the ETF that tracks the 20+ Year Bond Index. In the chart above the magenta dotted line represents the 60-day realized 

correlation for BTC and TLT. The chart shows that BTC is non-correlated with bonds, just like SPY and GLD are non-correlated with bonds as you can see below.  

Final Thoughts  

After analyzing the data one thing becomes clear: BTC does not behave like gold. In fact, according to the correlation data, it reveals that BTC displays both qualities of gold and equities, sort of an ultimate risk asset. The argument that bitcoin is an ultimate risk asset can certainly be made about BTC over the last 11 years.  

Disclaimer: This post is for educational purposes only. This is not an endorsement to buy or sell any utility tokens or cryptocurrencies. Please consult your financial advisor before purchasing any digital assets.

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