Bitcoin and S&P 500 Correlation Hits 0.4 Amid US Dollar Weakness

Bitcoin's price movements have recently aligned with those of the S&P 500, leading many to believe that cryptocurrency has matured and is now considered a typical risk asset. However, this correlation signals a deeper issue: a weakening faith in the US dollar and the policies governing it.

Every financial transaction involves an asset and a currency. If confidence in the currency (the denominator) wavers, the value of all assets (the numerators) tends to rise collectively. This phenomenon was evident in early April when both Bitcoin and equity futures experienced significant swings following the White House's announcement of steep tariffs on Asian imports. These tariffs raised concerns about US fiscal discipline and the Federal Reserve's ability to manage inflation without causing further economic instability.

Sticky inflation and expanding deficits continue to put pressure on the US dollar. The 30-day correlation between Bitcoin and the S&P 500 jumped above 0.4 last month, the highest since 2020. During this period, the US Dollar Index slid to a 12-month low, while Bitcoin gained 9% and the S&P rallied 6%. This is not a coincidence but a collective hedge against an unstable currency.

Trading desks have observed this pattern, where a drop in the US Dollar Index triggers immediate buy orders for Bitcoin and index ETFs, often placed by the same hedge fund algorithms. These algorithms prioritize the stability of the currency over the specific asset, indicating a broader shift in market sentiment.

Headline US inflation has cooled from 9% in 2022 to about 3% today, but persistent services prices and swelling deficits keep real-yield expectations fragile. Traders are now debating how much inflation the Fed will tolerate rather than whether it will tolerate any at all. When the Fed surprised markets with a 50-basis-point cut in December 2024, five-year breakevens jumped to their highest since 2011, Bitcoin cleared $70,000 within four sessions, and the S&P set a record close. This correlation followed credibility, as both assets rose because cash felt like a wasting asset.

Pressure on the US dollar also comes from abroad. The BRICS bloc is increasingly settling trade in local currencies and has tested wholesale central bank digital currencies (CBDCs). Central banks bought 1,045 tons of gold last year, the largest haul since the 1960s, while trimming Treasury holdings. Sovereign funds are testing Bitcoin allocations, and legislatures from various regions have eased rules on using it. These moves signal a widening search for exits from the dollar.

When official institutions diversify, private capital follows suit. Stocks behave like scarce assets when cash feels elastic. The S&P’s price-to-sales ratio sits near all-time highs even as earnings growth slows, a pattern last seen during the late-1990s inflation scare. Capital is paying up for productive assets because they look sturdier than paper promises.

Bitcoin’s realized swings in April slipped below those of the Nasdaq for the first time, hinting at a maturing holder base and reinforcing Bitcoin’s appeal as a reserve asset in waiting. Correlation is fickle and can change based on market conditions. In 2023, Bitcoin decoupled from stocks when US regional banks wobbled, jumping 20% even as the S&P sagged. The weld appears only when doubts about money itself dominate the tape.

Yet smoke points to fire. In the months since the Fed’s December pivot, rolling correlations have spent more time above 0.3 than in the previous 18 months combined. Currency traders call this a “common-factor regime” — a polite way of saying the dollar is the only thing that matters. If that regime persists, even markets for fine art or vintage wine may echo the same beat, indicating that the urge to outrun inflation is spreading through every corner of finance.

Those doubts are multiplying. US gross debt has passed $36.2 trillion (124% of GDP), and the Treasury now spends more on interest than on national defense. The Congressional Budget Office projects deficits further rising with $1.9 trillion already. Investors are wagering that the bill will be met with easier money, so they rotate into anything that cannot be printed at will.

Put plainly, a joint surge is the market’s SOS. When the duplicate headlines drive Bitcoin and the S&P higher, investors are not crowning crypto as a tech proxy; they are ring-fencing purchasing power against an overstretched fiscal-monetary mix. The tandem moves will persist as a warning light on the dashboard until Washington restores discipline and the Fed re-anchors expectations.

Investors do not wait for a perfect policy. They are acting now, leaning into assets with built-in scarcity. In that process, Bitcoin never loses its identity; equities borrow some of its scarcity halo. The two assets rise together not because they converge but because the ground beneath them shifts in the same direction.