Market Byte: Bitcoin Outperforming Its Macro “Betas” in 2023

Zach B&W
Zach Pandl
Last Update 07/20/2023


  • Crypto no longer behaves as its own ecosystem: Bitcoin and other digital assets are now more correlated with other market indicators.
  • Since January 2023, Bitcoin has appreciated more than can be explained by the rally in tech stocks and fall in the US Dollar. We think this reflects idiosyncratic positives, including optimism about eventual spot Bitcoin ETF approval, as well as Bitcoin’s surge in March following stress in regional banks. 
  • Although crypto has healed significantly since late 2022, valuations are now more closely tied to broader macro trends, and more Fed tightening could be a headwind for higher risk assets, including both equities and cryptocurrencies. 

Bitcoin has had an impressive start to the year, but so have many other assets. Historically, cryptocurrencies behaved as an isolated ecosystem, with essentially no correlation to broader markets. But as the asset class has matured this has changed: developments in markets like equities and currencies now explain a significant portion of the week-to-week variation in Bitcoin’s price (Exhibit 1). How much of Bitcoin’s price appreciation this year can be explained by broader macro trends rather than positives unique to digital assets? Based on a range of approaches, our best estimate would be roughly 50%. In other words, we believe about half of Bitcoin’s ~80% increase from December to mid-July likely relates to macro developments, while the other half is likely explained by Bitcoin-specific positives.

Exhibit 1: Crypto no longer an isolated ecosystem1

Bitcoin’s correlation with other market variables started to increase in tandem with the COVID-19 pandemic (Exhibit 2). Prior to that point, Bitcoin had a typically low correlation with the S&P 500, for example, and the correlation was not consistently positive or negative. Over the last three years, the correlation between Bitcoin and the S&P 500 has been clearly positive, and peaked at a correlation as high as 0.65 (or 65%) in the two years to October 2022. Bitcoin is also positively correlated to certain segments of the equity market, including technology stocks2 and shares preferred by retail investors3 (Exhibit 3). Other assets that are moderately correlated with Bitcoin’s price include gold, broad commodity indices, and measures of the US Dollar against both G10 and emerging market currencies. However, in general, these correlation patterns are quite variable and, in our view, should be expected to evolve over time as digital asset markets continue to mature.

Exhibit 2: Bitcoin now more correlated with broad equity indices …

Exhibit 3:… as well as variety of equity market segments

To understand how much of crypto’s year-to-date gains could be attributed to the broad increase in risky assets, we first estimate the “beta” (i.e. the statistical relationship) between Bitcoin and a variety of market indicators4. Beta is a way of measuring how much Bitcoin’s value changes when other market indicators change. After calculating these values, we multiply the year-to-date increase in other indices with the betas to estimate the predicted increase in Bitcoin. For example, the S&P 500 is up 17% this year (weekly data through Friday July 14) and Bitcoin’s beta to the S&P 500 during 2021-2022 was 1.55. This means for every 1% the S&P 500 increases, Bitcoin increases 1.5%. Therefore, the year-to-date gain in the S&P 500 would predict a 26% increase in Bitcoin (17% times 1.5). Exhibit 4 shows the results for several market indicators. In each case, Bitcoin’s 82% gain is more than can be explained by the appreciation in other markets and Bitcoin’s historical beta. The median predicted increase is 26%—only about one third of Bitcoin’s actual gain. The increase in the Nasdaq–the index with the highest correlation to Bitcoin this calendar year–explains about half of Bitcoin’s price appreciation.

Exhibit 4: Bitcoin up more than explained by its “beta” to other markets

While instructive, this exercise does not consider how these variables jointly relate to Bitcoin’s price, and cannot take into account other factors, including Bitcoin’s price momentum. To more comprehensively describe Bitcoin’s relationship with broader markets, we estimate a multivariate regression model, which includes the S&P 500, the value of the US Dollar, and several other variables6. We can use this model to project where Bitcoin’s price might have been based only on its correlation with other market indicators. As shown in Exhibit 5, given year-to-date moves in the Nasdaq, the US Dollar, and other market variables, as well as the typical momentum in Bitcoin’s price, this model would project a current price of $21-28k (depending on whether the estimation was in-same or out-of-sample). In percent terms, the two models indicate that macro trends can explain 25-75% of Bitcoin’s year-to-date price increase.

Exhibit 5: Macro market variables can only explain part of Bitcoin’s gains

The fact that Bitcoin has outperformed predictions based on broad market indicators suggest that idiosyncratic positives have also been driving its price. In our view, these likely include optimism around possible approval of a spot Bitcoin ETF in the US market, as well as the surge in Bitcoin following stress in regional banks in March (Exhibit 6). Crypto may also have been poised to rebound more than other markets after the steep drawdown last year.

Although crypto has healed significantly since late 2022, valuations are now more closely tied to broader macro trends. Therefore, incoming inflation data and the Federal Reserve’s response could have implications for Bitcoin and other digital assets. If inflation cools further, allowing the Fed to stop hiking, this year’s rally in Bitcoin and other risky assets may continue. However, if inflation proves stickier than expected, more Fed rate hikes could be a headwind for Bitcoin and other risky assets.

Exhibit 6: Bitcoin appreciated during regional banking stress

1. R-squared refers to the proportion of variation of a dependent variable explained by independent variables in a regression.

2. Here technology stocks refers to the Nasdaq index, recent IPOs, and unprofitable listed tech companies. Recent IPOs based on the Renaissance IPO index, which represents as basket of US newly-listed firms. Unprofitable Technology Companies (Tech Cos) based on the Goldman Sachs Non-Profitable Tech index, an index that consists of non-profitable US-listed companies in innovative industries.

3. Based on the Goldman Sachs Retail Favorites Index, which consists of US equities with high volume on retail brokerage platforms.

4. Based on weekly returns during 01/2021-12/2022.

5. We choose a two-year sample period to estimate the betas in order to cover most of the post-COVID period when Bitcoin displayed a higher correlation with other market indicators.

6. Estimates based on weekly data starting in May 2020; in-sample includes data through July 2023; out-of-sample result includes data through December 2022. Explanatory variables include the S&P 500, the Nasdaq (expressed as ratio to S&P 500), the S&P/GSCI (expressed as ratio to S&P 500), Commodity Trading Advisor (CTA) returns, the value of the US Dollar vs G10 currencies, gold prices (expressed as ratio to GSCI), and 10-year inflation-adjusted interest rates. CTA returns based on SG Trend Index, which calculates the net daily rate of return for a group of ten trend-following CTAs selected from the largest managers open to new investment.


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The S&P 500 Index (SPX) is a market-capitalization-weighted index that measures the performance of 500 of the largest publicly traded companies in the United States. The MSCI All Country World Index (ACWI) is a free-float-weighted index of the largest public companies in both developed and emerging markets. Nasdaq measured by the Nasdaq-100 (NDX) is a stock market index made up of 101 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock exchange. Technology is defined quite broadly to include new economy companies across GICS industry groupings. The S&P/GS Commodity Index (S&P/GSCI) is a benchmark measuring price movements and investment performance in commodity markets. Correlation is a statistical measure that quantifies the relationship between two or more assets. The Group of 10 (G10) refers to the world’s largest industrialized economies and/currency areas.

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