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Bitcoin's Shifting Relationship to Macro Factors

The article analyzes Bitcoin's relationship to various macro-financial factors using daily data from January 2012 to February 2022. Through the use of regression analysis and statistical inference, the article showcases how Bitcoin's daily price fluctuations have become more affected by broader financial markets since the pandemic's onset in January 2020.

The findings allow us to draw three firm conclusions supported by rigorous statistics. First, Bitcoin’s relationship to the S&P 500 Index has shifted significantly higher, and it now has a sizeable positive beta to the stock market. Second, Bitcoin has not demonstrated any inflation-hedging abilities. On the contrary, it has evinced a (slight) negative relationship to market-based inflation expectations.

Third, Bitcoin’s overall relationship to three macro-financial factors (namely, the stock market, US dollar and inflation expectations) has strengthened since the pandemic and confirmed by an F-test of joint significance, though the R-squared remains relatively low in absolute terms. There is another more tentative finding from the analysis, namely Bitcoin’s beta to the DXY Dollar Index may also have deepened, suggesting a negative relationship to the US dollar since the start of the pandemic.

These findings undermine some of the key arguments for more institutional asset allocation into Bitcoin, though it does not discuss Bitcoin's price outlook.

A description of the research methodology and the statistical findings are presented in https://medium.datadriveninvestor.com/bitcoins-shifting-relationship-to-macro-factors-5465d542078f?sk=860cc5c6480b74ba9e91832be5c08f0d