Crypto and Stock Market Correlation: What Traders Need to Know

Are cryptocurrencies like the rebellious teenagers of the financial world, or are they just another suit-wearing, Wall Street-approved assets in disguise? For years, traders have debated whether crypto moves to its own chaotic rhythm or if it secretly follows the stock market like a shadowy sidekick.

With market volatility keeping everyone on their toes (and sometimes off their chairs), understanding the connection between crypto and traditional stocks is essential for traders and investors.

Let’s break it down.

What Is Correlation

Correlation is a statistical measure that represents the degree to which two assets are linked or move in direct relation to each other (e.g., how stock prices influence investment returns or vice versa). It’s expressed as a number between -1 and +1, known as the correlation coefficient:

• +1 means they move in sync—when one goes up, so does the other.
• -1 means they move in opposite directions—if one rises, the other falls.
• 0 means there’s no clear relationship between them.

Investors use correlation to manage risk and build diversified portfolios. Pairing assets with low or negative correlation can help cushion losses when markets get rough—a key strategy in smart investing

When it comes to cryptocurrency and the stock market, this relationship has shifted over time.

At first, Bitcoin and other cryptocurrencies were thought to exist in their own world, separate from traditional finance. Investors saw them as a way to diversify, with little connection to stocks. But as crypto has gone mainstream, that independence has faded.

These days, when markets get shaky—whether due to inflation, interest rate hikes, or global events—crypto and stocks often react in similar ways. Investors treating crypto more like a high-risk tech investment means its price movements increasingly align with stock market trends.

Ironically, Bitcoin was once hyped as "digital gold," a safe haven in turbulent times. But in practice, it now behaves more like a volatile tech stock than a stable hedge against market swings.

Crypto Prices vs Stock Prices

In the early days, Bitcoin and other cryptocurrencies had little to no correlation with stocks. Their prices were driven more by hype, adoption, and regulatory news than by what was happening on Wall Street. But now, as institutional investors and big financial players have jumped into crypto, its price movements increasingly mirror those of high-risk tech stocks.

We’ve seen this play out during major market downturns. When inflation fears or interest rate hikes shake the stock market, crypto prices tend to drop right alongside it. The same investors who trade stocks are now treating Bitcoin, Ethereum, and other digital assets as part of the same high-risk, high-reward category. In other words, when traditional markets panic, crypto often follows.

However, this doesn’t mean that crypto and stocks always move in sync. There are still times when Bitcoin does its own thing, especially during industry-specific events like regulatory crackdowns or major blockchain upgrades. But the days of crypto being an entirely independent asset class are largely behind us.

For investors, this evolving relationship is a key element they should consider. If crypto behaves like a tech stock, it may not offer the same diversification benefits it once did. But understanding this correlation can help traders and long-term investors make smarter moves, whether that means hedging differently or rethinking how crypto fits into their portfolio.

Source: Investopedia

Correlation Factors Between Crypto and The Stock Market 

Several key factors influence the correlation between crypto and traditional financial markets.

1. Institutional Investment

One of the biggest reasons crypto now moves more like the stock market is the influx of institutional investors. In the past, Bitcoin and other cryptocurrencies were mostly traded by retail investors—individuals making their own bets on price movements.

Today, major hedge funds, banks, and corporations hold crypto, treating it like any other high-risk asset. When these investors adjust their portfolios—whether due to inflation fears, interest rate hikes, or global events—they don’t just sell stocks; they also sell crypto.

Some examples:

• Millennium Management is a major hedge fund that has invested heavily in Bitcoin, with nearly $2 billion in exposure. It holds a significant stake in Bitcoin ETFs, including more than 27,263 BTC.
• Goldman Sachs has ventured into Bitcoin futures trading and continues to explore various crypto-related opportunities. Meanwhile, JPMorgan Chase has developed its own digital currency, JPM Coin, for internal transactions.
• Tesla and MicroStrategy are well-known for their large Bitcoin holdings, while Block has also added Bitcoin to its balance sheet, underscoring its commitment to digital assets.

2. Macroeconomic Conditions

Stock and crypto prices are both influenced by broader economic conditions. When inflation rises, central banks (like the Federal Reserve) often respond by raising interest rates. This makes borrowing more expensive and reduces the flow of easy money in the economy, causing risky assets—including tech stocks and cryptocurrencies—to drop in value.

Similarly, economic downturns or recessions tend to trigger sell-offs across all markets. Investors become more risk-averse, shifting their money into safer assets like bonds and gold, leaving both stocks and crypto in decline.

3. Investor Sentiment and Risk Appetite

The stock market and crypto market share one important driver: investor psychology. When confidence is high and people are willing to take risks, money flows into speculative investments like high-growth tech stocks and cryptocurrencies.

But when fear takes over—whether due to a market crash, geopolitical crisis, or economic slowdown—investors pull back from riskier assets, leading to simultaneous sell-offs in both markets.

4. Market Liquidity and Leverage

Crypto and stocks are also connected through trading strategies. Many investors use leverage—borrowing money to amplify their bets—across both markets. When stock prices drop sharply, leveraged traders may be forced to sell crypto holdings to cover their losses, increasing downward pressure on crypto prices.

Additionally, crypto’s market liquidity—how easily an asset can be bought or sold without affecting its price—can amplify volatility. If large investors sell off crypto during a stock market downturn, it can trigger panic selling, leading to bigger price swings compared to traditional stocks.

5. Regulatory Changes and Policies

Government regulations also play a role in how crypto and stocks move together. When regulators impose strict rules on crypto markets, such as bans, tax policies, or tighter exchange regulations - it can shake investor confidence and lead to price drops. If these regulatory moves happen alongside stock market uncertainty, they can deepen the correlation between the two.

On the flip side, more favorable crypto regulations can boost investor confidence, sometimes causing crypto to move independently from stocks. However, as governments increasingly treat crypto as part of the broader financial system, regulatory decisions that impact stocks (like interest rate policies) also tend to affect digital assets.

For instance, the launch of Bitcoin ETFs has made it easier for institutional investors to enter the crypto market, leading to greater market stability and a stronger connection between crypto and traditional stocks.

There are still moments when digital assets break away from stock market trends, such as during major blockchain upgrades or crypto-specific events. But for now, anyone investing in both markets should be aware that the days of Bitcoin being a completely independent asset are fading.

Traders and long-term investors should keep an eye on macroeconomic trends, investor and market sentiment, and regulatory developments to make better-informed decisions about how crypto fits into their portfolios.

Historical Trends

Here are some real-life examples of how this correlation has played out over time.

1. The COVID-19 Market Crash (March 2020)

Before 2020, Bitcoin was often seen as a hedge against market turmoil—an asset that wouldn’t follow the same patterns as stocks. But when the COVID-19 pandemic hit in March 2020, both the stock market and crypto took a nosedive. The S&P 500 dropped by around 34% in just a few weeks, and Bitcoin wasn’t spared—it fell from about $9,000 to $4,000 in a matter of days.

Why? Investors panicked. During a crisis, people sell risky assets first, and at that time, both stocks and crypto were seen as high-risk investments. This was one of the first major signs that Bitcoin wasn’t immune to stock market shocks.

2. The 2021 Bull Run and Tech Stock Boom

After the March 2020 crash, markets bounced back in a big way. Trillions of dollars in stimulus money flooded the economy, interest rates were kept low, and investors rushed into risky assets. Tech stocks soared, with companies like Tesla and Apple hitting record highs. Crypto followed the same trend—Bitcoin skyrocketed from $10,000 in mid-2020 to nearly $69,000 by November 2021.

Source: IMF blog

A big reason for this correlation was institutional investment. Hedge funds and large firms started treating Bitcoin like a tech stock, buying in when markets were bullish and pulling out when risks increased. The rise of crypto-focused stocks, like Coinbase and MicroStrategy, further linked digital assets to the broader stock market.

3. The 2022 Market Crash

Just as stocks and crypto surged together in 2021, they crashed together in 2022. Rising inflation led the Federal Reserve to hike interest rates, making borrowing more expensive and reducing the appeal of high-risk investments. Tech stocks tanked—companies like Meta and Netflix saw their stock prices drop by over 50%. Crypto was hit even harder, with Bitcoin plunging from $69,000 to around $15,000 by the end of the year.

This was a turning point. It showed that Bitcoin, once thought of as "digital gold," was behaving more like a high-risk tech stock. Institutional investors, who once helped drive crypto’s bull run, were now pulling their money out, treating it no differently than other speculative assets.

What This Tells You

The historical trends make one thing clear: as crypto has matured, it has become more connected to the stock market. While there are still moments when Bitcoin and stocks move independently, major economic events now tend to impact both in similar ways.

This means that crypto might not be the safe-haven asset it was once believed to be—but understanding these correlations can still help make smarter trading decisions.

Bottom Line

Cryptocurrency’s evolution has blurred the lines between independent digital asset and traditional financial instruments. Once seen as a hedge against market swings, Bitcoin and other cryptocurrencies now move more like high-risk tech stocks, influenced by institutional investors, macroeconomic trends, and regulatory shifts.

While occasional crypto-specific events still cause divergence, major market shifts tend to impact both stocks and digital assets in tandem. For investors, recognizing this correlation is key while one thing is crystal clear: crypto’s relationship with traditional markets is stronger than ever.