These four factors accounted for 88% of variation in BTC price over previous four years
Aaron Brown, head of financial markets research at AQR Capital Management, estimates that the current Bitcoin price is around 20% lower than its historical relationship with other market prices. Bitcoin fell to $18,603 on June 30 before partially recovering to trade at $19,399 at press time.
Four factors—gold prices, stock market volatility, Bitcoin volatility and overall market volatility—have accounted for 88% of the price variation in Bitcoin over the past four years.
Bitcoin is correlated to the price of gold. As gold and Bitcoin can be used to store value unaffected by inflation, it is sometimes assumed that this correlation should be positive. However, when other factors are taken into account, there is a strong negative correlation. Gold and Bitcoin are opposite solutions to a lack of confidence in money.
Volatility in tech stocks and Bitcoin
Bitcoin has also benefitted historically from volatility in both tech stocks and Bitcoin itself. Currently, nearly $82,000 of the Nasdaq 100 Technology Index, $21,000 in borrowed money, and $50,000 in borrowed gold make up the proxy portfolio that corresponds to one Bitcoin. The proxy portfolio price, if estimated based on this, comes out to $25,000 versus the current market price of Bitcoin of roughly $20,000.
In this sense, Bitcoin seems to be “cheaper”. With the exception of the March 2021 spike, the proxy wallet has done a respectable job tracking Bitcoin prices since 2018.
General market volatility
Bitcoin has some option-like characteristics, so its price rises when the market is volatile. The Nasdaq index volatility add-on is now worth $8,000 at this time. Bitcoin prices might rise by around $4,000 if index volatility increases by 50% and fall by $4,000 if volatility decreases by 50%. If Bitcoin volatility increases or decreases by 50%, there might be a $3,000 gain or loss in the price of one Bitcoin if there is a $6,000 add-on for Bitcoin volatility.