Bitcoin's Nasdaq Correlation Prompts Standard Chartered to Suggest Tech Stock Role

Standard Chartered Bank has suggested that investors can consider Bitcoin as a large-cap tech stock, given its high short-term correlation with the Nasdaq. According to the bank's data, Bitcoin's current correlation with the Nasdaq is around 0.5, having previously reached close to 0.8 earlier this year. This correlation indicates that Bitcoin's trading behavior tends to align with that of large-cap tech stocks, suggesting it can be included in a basket of such stocks.

Geoff Kendrick, Global Head of Digital Assets Research at Standard Chartered Bank, stated that this correlation implies Bitcoin can play a dual role in investors' portfolios, potentially driving more institutional buying. He noted that while Bitcoin is often seen as "digital gold" and a hedge against risks in the traditional financial system, the demand for such hedging tools is extremely rare in reality.

To illustrate this point, Standard Chartered Bank created a hypothetical index called "Mag 7B," which includes Bitcoin alongside the "Magnificent 7" tech stocks: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, with Tesla excluded. According to Kendrick, since December 2017, Mag 7B has outperformed the original Magnificent 7 by approximately 5%. In terms of annual performance, over the past seven years, Mag 7B outperformed the Magnificent 7 in five out of five years, although the advantage in 2022 was marginal. In absolute returns, Mag 7B has shown strong relative returns, being about 1% higher on average per year than the Magnificent 7.

This analysis suggests that Bitcoin's performance is closely tied to the tech sector, and investors may benefit from considering it as part of their tech stock portfolio. The high correlation with the Nasdaq indicates that Bitcoin's price movements are influenced by the same factors that drive tech stocks, such as market sentiment and economic indicators. This correlation is particularly relevant in the short term, where Bitcoin's price can be highly volatile and sensitive to market conditions.

However, it is important to note that while Bitcoin's correlation with the Nasdaq is high, its correlation with gold has been steadily declining. Since January, Bitcoin's correlation with gold has briefly touched zero and is currently only slightly above 0.2. This indicates that Bitcoin's role as a hedge against traditional financial risks may be diminishing, and its performance is more closely tied to the tech sector.

In conclusion, Standard Chartered Bank's analysis suggests that investors can consider Bitcoin as a large-cap tech stock, given its high short-term correlation with the Nasdaq. This correlation implies that Bitcoin can play a dual role in investors' portfolios, potentially driving more institutional buying. However, it is important to note that Bitcoin's role as a hedge against traditional financial risks may be diminishing, and its performance is more closely tied to the tech sector. Investors should consider these factors when deciding whether to include Bitcoin in their portfolios.