Crypto: Positive bitcoin-stock correlation is 'here to stay'

Bitcoin (BTC-USD) is finding stable ground following a streak of volatility in recent months since reaching an all-time price high earlier in 2024. Additionally, the crypto space has seen gains in ethereum (ETH-USD) around the rollout of spot ether ETFs after the Securities and Exchange Commission (SEC) approved such product offerings in late May.

IDX Advisors Chief Investment Officer Ben McMillan shares his cryptocurrency outlook based on ETF inflows, comments made by traditional investors like Peter Thiel, and whether President Biden or former President Trump will be able to win over the crypto crowd in this coming election.

"If you look at the correlation of Bitcoin to stocks in general... it was very low kind of pre-COVID. And then after Covid, particularly after 'money printing,' you saw that correlation spike. And that makes a ton of sense. We think that'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 kind of a 0.6 correlation. But we're not going to go back to the days of bitcoin being zero or even negatively correlated to risk assets. So... investors need to understand that positive correlation to risk assets of bitcoin is here to stay. It's something to factor in when you think about it within your portfolios."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Luke Carberry Mogan.

Video Transcript

Bitcoin regaining some momentum to start the second half of the year with prices up just about 2% today.

Now the move higher following a downbeat quarter for the Cryptocurrency still off about 12% from its March high as investors excitement surrounding Bitcoin ETS had cooled.

So what can investors expect in the second half of the year here to help us answer that question and more we want to bring in Ben mcmillan, Chief Investment Officer at ID X Advisors.

Ben, it's good to see you.

So here we are kicking off the second half of the year for crypto.

I think lots of people are, are at home questioning whether or not we are going to see this return of excitement when it comes to the crypto market.

More specifically Bitcoin, what's it going to take in order to regain some of that momentum?

Well, I mean, we do have a couple of near term catalysts to look forward to, to um you know, the first of which is being uh the presumption of spot Ethereum ETF S um that could really cut them as early as this week.

We've seen a lot of excitement about that especially as kind of adoption of the crypto market starts to broaden.

I think the spot ETF S did a really good job of kind of, you know, for lack of a better term mainstreaming the idea of Bitcoin to a broader audience that, you know, probably wouldn't have really thought about it.

Otherwise we've been hearing those conversations with, you know, we've been hearing those in conversations with advisors and institutional investors that we talked to that once the blackrock ETF all of a sudden came on to the marketplace, they're starting to, you know, consider it more closely for their, you know, so called 6040 portfolios.

But I do think a lot is going to depend on the macro in Q three, you know, Bitcoin is for better or for worse, highly correlated with the NASDAQ.

It looks and feels a lot like a very, you know, high beta growth stock and, you know, to the extent that we see, you know, the emergence of a US recession, even if it's shallow and we do start to see a rotation out of, you know, higher beta, you know, tech type stocks.

I do think that can weigh on Bitcoin, you know, but I, I also wanna get your take on a different topic.

I don't know if you saw this but um billionaire Peter Thiel was on another network recently and he was talking about Bitcoin and it was interesting Ben just because um he didn't sound as enthusiastic as maybe a lot of people would imagine.

He, he's still not listen, he, he holds some bit Bitcoin but he said he isn't sure the price will rise dramatically from here.

I was just curious, Ben, what if anything you made of those comments?

Um Do those comments matter, Ben?

You know, I, I saw that as well.

I found it interesting because it's hard to not be kind of structurally bullish on crypto in general at this point in the cycle.

It's still very early from an adoption rate, you know, it's still very early too in terms of use cases, you know, a lot of what we've seen is just kind of scratching the surface in terms of, you know, what crypto can do in terms of facilitating, you know, real world outcomes.

Um You know, we saw a glimmer of it with kind of defi summer web three.

you know, the idea of, of, of kind of smart contracts and, and things like ordinals kind of, you know, branching out to the broader world.

So, you know, it's hard to, it's hard to see how this is kind of the end of the run for Bitcoin.

I, I just don't see it now, that's not to say there's not going to be volatility ahead.

And again, you know, Bitcoin, you know, Bitcoin is gonna go where the macro environment goes.

So I do think it's important to be cautious for investors that you know, just because the secular B story or thesis is intact, doesn't mean it's gonna be a straight shot upwards.

But I, I'm hard pressed to believe that, you know, Bitcoin doesn't set new highs over the next, you know, 12 to 24 months from here, Ben, you just mentioned uh that correlation a couple of times here just in terms of what we've seen with some of those more risk on assets and the price of Bitcoin.

We, we take a look at that correlation.

Does that make sense?

Given some of the activity that we had seen prior to the last 12 months and I guess drawing from that, what does that then tell us maybe about what that activity could or should maybe potentially look like here in the coming months?

Yeah, that's an excellent question.

And it's, it's one where, you know, we were, we were very reticent kind of if you look at the correlation of Bitcoin so stocks in general or, you know, or tech stocks in particular, um it was very low kind of pre COVID.

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

We think that's here to stay now.

That doesn't necessarily mean it's going to be as high as it has been recently forever, you know, it's running at kind of a, you know, 0.6 correlation, but we're not going to go back to the days of Bitcoin being, you know, zero or even negatively correlated to risk assets.

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

It's something to, you know, it's, it's something to factor in when you think about it within your portfolios.

But that also doesn't mean that it's not at times, you know, gonna move a little bit differently or that it doesn't have, you know, any diversification advantages.

But I do think again, we always caution investors, think about Bitcoin as a very high beta, you know, high duration or long duration kind of tech play and, you know, in the context of your portfolios because that correlation, you know, is gonna ebb and flow kind of around the 0.5 0.6 mark, but it's not gonna go back to zero.

It's certainly not gonna go back negative now with, you know, any kind of long term structural outcome.

So I think, you know, it's it think of it like a, like a high beta tech stock.

Ben, are you surprised the way crypto has become an issue uh in this presidential election?

And, and do you think Ben, there's a candidate Biden or Trump who's gonna have an easier time winning over that crypto crowd?

Well, yeah, I mean, what's been interesting to me in this election cycle is the degree to which the crypto pacs came out in force with real big money and they've been influencing outcomes already and, and kind of, you know, congressional races, you know, we saw the one in the Bronx, there was a big one in California and, you know, the crypto pac, you know, fair shake and some other ones, you know, spent real money backing crypto, you know, crypto favorable candidates.

And so I think what's interesting there is crypto now is all of a sudden, you know, kind of a force to be reckoned with.

And I think, I think politicians are taking note on both sides of the aisle.

Um You know, I also think the crypto community by and large is favorable to a Trump outcome.

You know, if you know Trump, I think has been strategic about trying to court the crypto community saying, you know, he's going to do a lot of good things for crypto.

But I think even if you have heavily discount that just the fact that it's probably at a minimum, gonna be much more laissez faire than what we've seen with.

You know, Biden is what's driving a lot of the crypto enthusiasm for Trump.

But yeah, I mean, I think the bigger takeaway, at least to me has been how active and how big the kind of crypto lobby has become this election cycle.

And I think that's here to stay as well too.

Yeah, Ben don't tell us a little bit more just about the significance of that and the influence.

Maybe you see that having just more broadly here 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 narrative.

And I think I have to say, I mean, I think the crypto lobby has done a very good job of, you know, being very clear that, listen, this is a source of innovation for America.

And so, you know, we're not asking for any kind of special treatment.

We're just simply asking for, you know, uh you know, lawmakers and politicians to, you know, look at crypto as a technology as a source of it in and not just kind of cast it out as the domain of illicit, you know, criminals and, and you know, money launderers and things like that, which is kind of the early narrative or early rhetoric we heard from, you know, some, some, you know, Congress people, you know, a couple of years ago.

And so I think it's been, I think it's come from a good place.

I think it makes a lot of sense.

Um And I think it is actually having an impact in terms of educating Congress people and politicians and also not forget it, you know, record amounts of people own crypto.

You know, if you look at the estimates, it's upwards of 60 million people.

So it again, it's, it's not a fringe thing anymore.

It affects a lot of Americans people are paying close attention, you know, especially if you look at things as, you know, federal, uh, you know, federally backed CBD CS and potential privacy concerns around there.

You know, it's, it's starting to occupy a very real mind share for a lot of Americans.

Ben.

Great to have you on the show.

Thanks for taking the time to chat today.

Absolutely.

Thanks.