A new study from Singapore-based banking giant DBS indicates that the influence of bitcoin has grown to the extent it now has the ability to affect stock markets during big price moves.
- Published Tuesday, the research report titled "Shifting cross-asset correlations" sets out to examine how different assets, including bonds, equities, bitcoin and gold, may influence each others' markets.
- Looking at data from November 2020, when bitcoin experienced a major growth in market cap, DBS found that the top cryptocurrency has been positively correlated with S&P 500 futures in every month since.
- The authors, Chief Economist Taimur Baig and credit and FX strategist Chang Wei Liang, said this means bitcoin can be considered a "risky asset," though they add that the average correlation is "relatively low" at 0.20.
- They also looked at whether extreme moves in bitcoin could have a knock-on effect on stock markets, finding that the correlation with S&P 500 futures rose to 0.26 during volatile events, from just 0.19 in normal conditions.
- "This suggests that broader equity sentiment could become more coupled with sentiment in bitcoin markets for a temporary period of time (60h), post an unusually large move," the authors wrote.
- Other statistical tests backed up the data and showed that stock market volatility was "markedly higher than normal" after a big move in bitcoin.
- As such, the authors concluded that "bitcoin is no longer the fringe asset that it once was," and suggested market participants should monitor developments in the bitcoin market when conducting risk and sentiment monitoring.