Does Bitcoin Crash With Stocks? Why This Time is Different

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Introduction

In my eight years of navigating the crypto space, which I can partially attribute to some of my newly grey hairs, Bitcoin has often been "coined" (see what I did there), as digital gold. But frankly, its struggled to live up to its store-of-value narrative during times of uncertainty. When it matters most, its immaturity has been on full display, often behaving more like a high-beta tech stock and less like a safe haven.

Despite being one of the least correlated alternatives to the U.S. stock market (see Figure A below), Bitcoin tends to fall in line with equities during risk-off environments, plunging when fear is high and only rallying when risk appetite returns.

But finally, just finally, something broke. Following Trump’s announced tariffs, which sent the S&P 500 down -12.1% from peak to trough (so far), Bitcoin didn’t just outperform, it significantly decorrelated, offering the clearest sign yet that the BTC/SPY relationship may be changing.

Figure A: Risky Asset Correlations with S&P 500

Correlation of monthly returns from Jan 2019 through Dec 2024. Indices include MSCI ACWI, Bloomberg Barclays High Yield, Investment Grade Corporate Bonds, and S&P/GSCI

So the question becomes: is Bitcoin finally acting like a hedge? Amid a massive realignment of global trade, are we witnessing a true shift in market behavior?

To explore this, I dug into five major market corrections to analyze Bitcoin's relative performance, risk, and correlation to U.S. equities.

Five Key Market Corrections: What the Data Says

Late 2018 Correction
Covid-19 Crash
Fed's Rate Hike Fiesta
Japan Carry Trade Unwind (August 2024)
Trump's Liberation Day

In the first four corrections, Bitcoin lagged the S&P 500:

Down -7.1% during COVID-19
-10.5% after Japan raised interest rates in August 2024
-18.3% during the 2018 correction
A brutal -33.4% during the 2022 Fed tightening cycle

But during the latest tariff-driven selloff? Bitcoin outperformed by +5.4% (and counting).

Figure B: Bitcoin's Returns vs. the S&P 500 During Major Corrections

And even more interestingly, Bitcoin’s volatility relative to the S&P has tightened over time. During this latest dip, its volatility was only 5.4% wider at the bottom, much narrower than in past cycles.

Figure C - Relative Risk (Measured by Volatility)

But here’s the headline: Bitcoin finally demonstrated a significant negative correlation to equities, clocking -51.3% following the tariff correction.

Figure D - Correlation Between Bitcoin and the S&P 500

Why Was This Time Different?

We're in the midst of a global economic restructuring.

For the past decade, Bitcoin’s sticky correlation to U.S. equities has largely stemmed from three macro variables:

Global Liquidity: The size of global central bank balance sheets

U.S. Fiscal Deficit: The gap between government spending and revenue

U.S. Trade Deficit: The imbalance of imports versus exports

As global liquidity (i.e., central bank balance sheets) expanded, so did the nominal value of investable assets. Capital needs to find a home, and thanks to the U.S. dollar’s role as the world’s reserve currency, much of that flow ends up in U.S. equities and Treasuries.

As we noted in Khelp’s Liberation Day coverage, “Tariffs, Trade Wars, and the Case for Bitcoin”, when countries export goods and receive dollars in return, they’re left with stockpiles of cash. That cash is often reinvested into U.S. assets, further reinforcing the dollar’s dominance.

Ironically, those same capital inflows can strengthen developing market currencies, making their exports less competitive, a vicious cycle of global imbalance.

Take a look at the relationship between global liquidity (Yellow Line) and the S&P 500 (Candled) over the past decade. It’s an almost glaring mirrored image.

As the world’s top consumer nation, U.S. companies benefit disproportionately from this setup. And much of the driver behind global liquidity growth? Our own outsized fiscal deficit.

Felix Jauvin captured this dynamic well in "Bitcoin: The Trade After the Trade"

“the U.S. has run a substantially higher fiscal deficit as a % of GDP than any other country... and with the U.S. running such a large deficit, top line growth (revenue for companies) has been dominant and has led to significantly US equity performance vs other modern economies."

Figure E - Western Nation Fiscal Deficit as a % of GDP

Source: Felix Jauvin (Bitcoin: The Trade After the Trade)

So the pattern has been: global liquidity up → U.S. deficit up → U.S. equities up.

But now, Trump’s tariff announcement may have triggered a major turning point. A new trade war introduces a shift in capital flows that could lead to:

Reduced Global Demand for Dollars
(Positive for Bitcoin, Negative for Equities)

Monetary Easing to Combat Slower Growth
(Positive for both Bitcoin and U.S. Equities)

Heightened Geopolitical Risk
(Positive for Bitcoin, Negative for Equities)

Key Takeaway:

All three of these factors favor Bitcoin, an asset not tied to any one nation, and especially not one at the center of a global trade dispute. We expect this trend of de-correlation and relative outperformance to continue, as capital increasingly seeks sovereign-neutral assets like Bitcoin over traditional U.S. markets.

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Boomer Saraga | Crypto Investment Manager

Closing Disclaimer: This blog is for informational purposes only. While the information provided herein is believed to be accurate and reliable, none of Khelp, or any of their respective affiliates or representatives or any other person makes any representations or warranties, express or implied, as to the accuracy or completeness of such information.