Selling Bitcoin On Recession Fears: Why It's a Flawed Plan And How Bitcoin May Hold Up In The Digital Asset Era

Ten percent — that's how much the Nasdaq has dropped in just one week. The S&P 500 is close behind, down 8.80%, with the Dow falling 7.60% over the same period.

With all this volatility — as the VIX hit a high of 45.60 — Bitcoin, as of April 4th, is up over 1% on the day.

Weird, right? When it comes to ‘risk-on’ assets, Bitcoin has typically been viewed as the riskiest — but over the last few weeks, we've seen a correlation that's anything but typical.

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Bitcoin’s Historical Behavior and Correlation with Other Asset Classes

From 2012 through 2023, Bitcoin was either the top or bottom performing asset in every calendar year — never in the middle — per WisdomTree’s March 2024 report, "Dynamic Correlations: Bitcoin vs. Other Asset Classes." In nine of those years, it outperformed everything else. But in years like 2018 and 2022, it dropped over 60%, showing how extreme its swings can be.

What's even more interesting is Bitcoin's low and constantly shifting correlation to traditional assets. WisdomTree's data shows its 50-day rolling correlation to the S&P 500 has typically ranged between -0.1 to 0.2, sometimes spiking, but never staying consistent. This suggests that Bitcoin isn't reliably tied to equities and can act differently in times of stress — exactly like what we're seeing now.

"The hardest single thing to understand about correlation is that it is always shifting." – WisdomTree, 2024

So while the broader markets are bleeding, Bitcoin's resilience today could be a glimpse into its evolving role — possibly as a diversifier when traditional assets move in tandem.

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Bitcoin and the S&P 500: Comparing 1-Year Performance Trends

When it comes to the past year’s performance as of Friday, Bitcoin is up roughly 25%, while the S&P 500 is down 7%. This means that if you had bought Bitcoin a year ago today, you'd be up, while the opposite is true for the S&P 500.

Source: Godel Terminal (BTC v SPX – Year % Change)

While this data is not complex and doesn't delve into a more in-depth technical view, it's important to understand. The common view would be to sell Bitcoin during these downturns, as it has been considered the riskiest asset out there, but this simple data set shows otherwise in recent times.

When comparing the weekly structure of Bitcoin to certain US indices, Bitcoin has a much stronger chart in terms of staying above key pivot points.

For example, indices like the S&P, Nasdaq, and Dow are all below the election swing point, while Bitcoin is still trading above that price level.

Source: TradingView (User: NoticeTrades)

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While this isn't a direct indicator of whether Bitcoin will ultimately hold up during the current uncertain environment, it could mark the beginning of a shift we haven't seen before. 

Bitcoin’s ability to stay above key levels while traditional assets falter suggests that it may be gaining more traction as a potential hedge or safe haven. In a world where central banks and governments are increasingly pushing the boundaries of monetary policy, Bitcoin's fixed supply and decentralized nature could allow it to act as a store of value in ways that traditional assets cannot.

The Road Ahead for Bitcoin

Despite its reputation for volatility and risk, Bitcoin’s recent performance in the face of macroeconomic uncertainty challenges conventional thinking about digital assets. Historically seen as a speculative, high-risk investment, Bitcoin is showing signs of evolving into something more, possibly even a safe haven during turbulent times. 

With its continued strength above key price levels and its non-correlated behavior relative to traditional assets like the S&P 500, Bitcoin could be paving the way for a new era of digital asset investment. Whether or not it fully holds up under the pressure of ongoing market turbulence remains to be seen, but the data suggests that those who write it off as a risk asset may be overlooking its emerging role in modern finance.

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