Bitcoin's Correlation with Nasdaq Rises, Outperforming Magnificent 7 by 5%

Bitcoin, the world's largest cryptocurrency by market capitalization, has been increasingly correlated with the Nasdaq Composite Index, according to analysts. This correlation suggests that Bitcoin may be more akin to a large-cap tech stock than a hedge against market volatility, as it has traditionally been perceived.

Standard Chartered analyst Geoffrey Kendrick has proposed a hypothetical "Mag 7B" index, which replaces Tesla with Bitcoin in the Magnificent 7 index. The Magnificent 7 index typically includes tech giants such as Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla. Kendrick's analysis shows that if Bitcoin had been included in this index starting in 2017, it would have outperformed the original Magnificent 7 by approximately 5%. Additionally, the volatility of the Mag 7B index would have been lower than that of the original Magnificent 7 index, with an average annualized volatility reduction of nearly 2%.

Kendrick's findings are supported by the observation that Bitcoin's price movements have been more closely aligned with those of the Nasdaq than with gold. This correlation has been particularly evident since the inauguration of President Donald Trump, with Bitcoin trading in a similar manner to stocks like Nvidia and Tesla. The analyst notes that during this period, Bitcoin's price declines and volume levels have mirrored those of these tech stocks, further emphasizing the correlation.

The increasing correlation between Bitcoin and the Nasdaq has significant implications for investors. Traders who view Bitcoin as a tech stock may benefit from its potential for higher returns and lower volatility compared to traditional tech stocks. This perspective challenges the conventional wisdom that Bitcoin is primarily a hedge against market volatility and inflation. Instead, it suggests that Bitcoin's performance is more closely tied to the broader tech sector, which has seen significant growth and innovation in recent years.

The shift in Bitcoin's correlation from gold to the Nasdaq reflects broader changes in the cryptocurrency market. As Bitcoin has gained mainstream acceptance and institutional investment, its price movements have become more closely linked to those of traditional financial markets. This trend is likely to continue as more investors recognize the potential of Bitcoin as a tech stock and incorporate it into their portfolios.

Despite recent pullback and continued uncertainty, Standard Chartered continues to recommend buying BTC on the weakness. Kendrick expects the asset’s price to hit $200,000 by the end of this year, and soar further to touch the $0.5 million mark before the end of Trump’s tenure. Part of the ongoing weakness in BTC may be due to the $1.5 billion Bybit hack in February. However, the firm’s analyst is convinced that the crypto industry will be significantly safer as it becomes more “institutionalized.” Additionally, the pro-crypto policies and regulatory clarity under the Trump administration will continue to drive global interest in Bitcoin and will help drive the asset’s price up moving forward.