Positive Correlation Between Bitcoin and Stocks Is ‘Here to Stay’

Bitcoin (BTC-USD exchange rate) is finding stable ground after a series of volatility in recent months since it hit an all-time price high in early 2024. Additionally, the cryptocurrency space has seen gains in ethereum (ETH-USD) regarding the launch of spot ether ETFs after the Securities and Exchange Commission (SEC) approved such product offerings in late May.

Ben McMillan, Chief Investment Officer at IDX Advisors, shares his crypto outlook based on ETF inflows, comments from traditional investors like Peter Thiel, and whether President Biden or former President Trump will win over crypto enthusiasts in the upcoming election.

“If you look at the correlation of Bitcoin to stocks in general… it was very low pre-COVID. And then post-COVID, specifically post-money printing, you saw that spike in correlation. And that makes a lot of sense. We think it’s here to stay. Now, that doesn’t necessarily mean it’s going to be as high as it has been recently forever,” McMillan tells Market Domination Overtime. “It’s running at about a 0.6 correlation. But we’re not going back to the days when Bitcoin was zero or even negatively correlated to risk assets. So… investors need to understand that the positive correlation to risk assets of Bitcoin is here to stay. That’s something to consider when you think about it in your portfolios.”

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This post was written by Luca Carberry Mogan.

Video Transcription

Bitcoin is regaining momentum as we begin the second half of the year, with prices up about 2% today.

The rally now follows a down quarter for the cryptocurrency, still down about 12% from its March high, as investor enthusiasm around Bitcoin ETS cools.

What can investors expect in the second half of the year? To help us answer this question and more, we spoke to Ben McMillan, Chief Investment Officer at ID X Advisors.

Ben, it’s good to see you.

And here we are, at the beginning of the second half of the year for cryptocurrencies.

I think a lot of people at home are wondering whether or not we’re going to see this kind of revival of enthusiasm in the cryptocurrency market.

More specifically, what will it take for Bitcoin to regain some of that momentum?

Well, I mean, we have a couple of near-term catalysts to watch with interest, the first of which is the presumption of a spot Ethereum ETF that could really cut them as early as this week.

We have seen a lot of excitement about this, especially now that cryptocurrency market adoption is starting to expand.

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I think the spot S ETF has done a great job, for lack of a better term, of getting the idea of ​​Bitcoin out to a broader audience that, you know, probably never would have thought of it.

Otherwise we’ve heard those conversations with, you know, we’ve heard those conversations with advisors and institutional investors that we’ve talked to that once the Blackrock ETF suddenly came to market, they started, you know, looking at it more carefully for their, you know, so-called 6040 portfolios.

But I think a lot will depend on the macroeconomic performance of the third quarter: you know, Bitcoin is, for better or worse, highly correlated to the NASDAQ.

It looks and feels very much like a very high beta growth stock and, you know, to the extent that we see the emergence of a recession in the United States, even if it’s a shallow one, and we start to see a rotation out of the higher beta, you know, technology-type stocks.

I think this could weigh on Bitcoin, you know, but I would also like to know your opinion on another topic.

I don’t know if you’ve seen this, but billionaire Peter Thiel was on another network recently and he talked about Bitcoin and it was interesting Ben, just because he didn’t seem as enthusiastic as a lot of people might imagine.

He, he hasn’t listened yet, he, he holds some Bitcoin but he said he’s not sure the price will go up dramatically from here.

I was just curious, Ben, what did you think of those comments?

Um, do those comments matter, Ben?

You know, I saw it too.

I found this interesting because it is hard not to be structurally bullish on cryptocurrencies in general at this point in the cycle.

It is still very early to talk about adoption rates, and it is still very early in terms of use cases, much of what we have seen is just a glimpse of what cryptocurrencies can do to facilitate real-world outcomes.

Um, you know, we saw a glimpse of that with a kind of summer web three.

You know, the idea of, of, of sort of smart contracts and, and things like ordinals, you know, that extend out into the broader world.

So, you know, it’s hard, it’s hard to see how this is in any sense the end of the Bitcoin run.

I, I just don’t see it right now, but that doesn’t mean there won’t be volatility in the future.

And again, you know, Bitcoin, you know, Bitcoin will go where the macroeconomic environment goes.

So I think it’s important to be cautious with investors, because, as you know, just because the history or the secular thesis of Series B is intact, it doesn’t mean there’s going to be direct growth.

But I, I have a hard time believing that, you know, Bitcoin isn’t going to set new highs in the next, you know, 12 to 24 months from here, Ben, you just mentioned that correlation a couple of times here just in terms of what we’ve seen with some of those riskier assets and the price of Bitcoin.

We, we take a look at this correlation.

Does this make sense?

Given some of the activity that we’ve seen before over the last 12 months, and I guess, going from there, what does that tell us about what those activities could or should potentially look like in the coming months?

Yes, that’s a great question.

And it’s, it’s one of those times where, you know, we were, we were very reticent, if you look at the correlation of Bitcoin, so stocks in general or, you know, or tech stocks in particular, it was very low before COVID.

And then after COVID, particularly after, quote unquote, the money printing, you saw that spike in correlation and that makes a lot of sense.

We believe this situation is here to stay.

That doesn’t necessarily mean it’s going to be as high as it’s ever been recently, you know, it’s hovering around a 0.6 correlation, but we’re not going back to the days when Bitcoin was, you know, zero or even negatively correlated to risk assets.

So, you know, investors need to understand that the positive correlation with risk assets of a Bitcoin is here to stay.

It’s something to, you know, it’s something to consider when you think about your portfolios.

But that doesn’t mean it can’t sometimes move a little differently or have any diversification benefits.

But again, we always caution investors, think of Bitcoin as a very high beta, you know, high or long-duration type of technology and, you know, in the context of your portfolios because that correlation, you know, will have peaks and troughs around 0.5-0.6, but it will not go back to zero.

It certainly won’t go back to negative, with any kind of long-term structural result.

So I think, you know, you can think of it as a high-beta technology stock.

Ben, are you surprised how cryptocurrencies have become an issue in this presidential election?

And, and do you think Ben, is there a candidate between Biden and Trump who will have an easier time winning over the crypto-loving crowd?

Well, yeah, I mean, what’s interested me in this election cycle is the degree to which crypto PACs have shown up en masse with a lot of money and have already affected the results and, and in some ways, you know, the congressional elections, you know, we’ve seen the one in the Bronx, there was a big one in California and, you know, the crypto PAC, you know, Fair Shake and some of the others, you know, have spent real money to support pro-crypto candidates.

So I think the interesting thing is that now cryptocurrencies have suddenly become a force to be reckoned with.

And I think politicians on both sides are taking note of this situation.

Um, you know, I also think the cryptocurrency community in general is in favor of a positive outcome for Trump.

You know, if you know Trump, I think he had a strategy of courting the cryptocurrency community, saying he was going to do a lot of good things for the industry.

But I think even if you greatly underestimate the fact that it would probably be a minimum, it would be a much more laissez faire approach than we’ve seen so far.

You know, Biden is driving a lot of the cryptocurrency hype over Trump.

But yeah, I mean, I think the biggest thing, at least for me, has been how active and how big the cryptocurrency lobby has become in this election cycle.

And I think this trend is here to stay.

Yes, Ben, don’t tell us anything else about the meaning and influence of all this.

Maybe you think this is broader, even beyond the election.

Well, yeah, I mean, it’s, you know, it’s interesting because I think it’s going to force a little bit more thoughtful storytelling.

And I think I have to say, you know, I think the cryptocurrency lobby has done a great job, you know, making it clear that this is a source of innovation for America.

So, you know, we’re not asking for any kind of special treatment.

We’re simply asking legislators and policymakers to look at encryption as a technology, as a source of information, and not just rule it out as the domain of illicit criminals and money launderers and things like that, which is kind of the first narrative or the first rhetoric that we heard from some members of Congress a couple of years ago.

And so I think it was, I think it started from a good premise.

I think that makes a lot of sense.

And I think it’s actually having an impact in terms of educating members of Congress and politicians and, don’t forget, record numbers of people own cryptocurrency.

You know, if you look at the estimates, it’s over 60 million people.

So, again, it’s no longer a marginal thing.

It’s about a lot of Americans that people are paying a lot of attention to, you know, especially when you consider things like, you know, federally backed CBD CS and the potential privacy issues around that.

You know, it’s starting to occupy a prominent position in the minds of many Americans.

Well.

It’s a pleasure to have you on the program.

Thanks for taking the time to chat with us today.

Absolutely.

Thank you.

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