Academic literature reveals that correlations between cryptocurrencies and equities have strengthened significantly, especially during economic stress, turning crypto from a diversifier into a high-beta asset intertwined with stock market movements. This evolution reflects growing institutional adoption and shared risk factors.
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Correlations spike during crises: Studies show crypto-equity linkages intensify in events like COVID-19, with spillovers amplifying market volatility.
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Crypto now acts as a risky asset similar to tech stocks, driven by interest rate sensitivity and investor behavior.
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Evidence from global analyses indicates Bitcoin shocks explain up to 15% of equity volatility variations, highlighting embedded crypto risks.
Explore the rising correlations between cryptocurrencies and equities in 2025. Discover how academic insights reveal crypto’s new role in portfolios amid economic stress. Read now for expert analysis and key takeaways.
What is the current correlation between cryptocurrencies and equities?
The correlation between cryptocurrencies and equities has evolved from minimal in early years to a strong, time-varying linkage today, particularly during periods of market stress. Academic research, such as Liu and Tsyvinski (2021) in the Review of Financial Studies, initially found cryptocurrencies driven by unique factors like momentum rather than traditional market risks. However, recent studies document heightened spillovers, positioning crypto as an integral part of the global risk ecosystem rather than an isolated asset.
How have spillovers between crypto and stock markets intensified?
Spillovers between cryptocurrencies and stock markets have intensified due to shared sensitivities to macroeconomic factors and institutional integration. A survey by Adelopo et al. (2025) in Financial Innovation reviews evidence of non-linear linkages, noting stronger connections during events like the COVID-19 pandemic and the Russia-Ukraine war. Umar et al. (2021) in Finance Research Letters demonstrates high connectedness between crypto and technology sectors via implied volatility indices, while Frankovic (2022) in Global Finance Journal highlights return spillovers to blockchain-linked stocks.
Recent papers further quantify this trend. Vuković (2025) in the Journal of International Money and Finance uses Bayesian Global VAR models to show crypto shocks depressing global stock indices, bonds, and exchange rates. Ghorbel et al. (2024) in the European Journal of Management and Business Economics apply network analysis to reveal cryptocurrencies as key shock transmitters to G7 equities, especially in turbulent times. Lamine et al. (2024) in the Journal of Economics, Finance and Administrative Science identify dynamic risk spillovers from crypto to U.S. and Chinese stock markets, peaking during high-volatility episodes. Sajeev et al. (2022) in the Journal of Economic Studies document Bitcoin’s contagion effects on major exchanges like the Dow Jones and Shanghai from 2017-2021.
An IMF departmental paper on spillovers between crypto and equity markets estimates that Bitcoin shocks account for around 15% of global equity volatility variations, a figure that has grown with maturing derivatives markets. Professor Andrew Urquhart, Head of Finance at Birmingham Business School, emphasizes in his analysis that crypto now exhibits “nasty tail behavior” akin to high-beta tech sectors. These findings underscore crypto’s transition from uncorrelated to a leveraged proxy for risk sentiment.
Frequently Asked Questions
What factors drive the increasing correlations between cryptocurrencies and equities during economic stress?
Key factors include interest rate sensitivity, shared investor bases using leverage, and institutional portfolio strategies. During stress, both assets face discounted future cash flows from rising rates, while momentum trading and de-risking amplify spillovers. Studies like those from the IMF confirm this pattern, with correlations spiking to protect against volatility.
Is cryptocurrency still a good diversifier for equity portfolios?
Cryptocurrencies offer modest diversification in calm markets but lose this benefit during stress, behaving like risky equities. Academic evidence from Ghorbel et al. (2024) shows heightened co-movements with stocks in crises, suggesting allocations should treat crypto as part of the risk bucket rather than an independent hedge for balanced exposure.
Key Takeaways
- Crypto-equity correlations have risen sharply: From early minimal links, recent data shows strong spillovers during global events, embedding crypto in traditional risk dynamics.
- Tech sector parallels are evident: Shared drivers like rate sensitivity and leverage make crypto move with growth stocks, as per Umar et al. (2021) volatility studies.
- Portfolio implications demand caution: Investors should reassess crypto as a high-beta asset, monitoring stress periods for potential amplified losses and adjusting allocations accordingly.
Conclusion
The strengthening correlations between cryptocurrencies and equities, as detailed in academic literature from sources like Financial Innovation and the IMF, signals a maturing asset class deeply intertwined with global markets. Spillovers during economic stress highlight the need for integrated risk management in portfolios. As institutional adoption grows, staying informed on these dynamics will be crucial for investors navigating 2025’s volatile landscape—consider reviewing your strategy today for resilient outcomes.
Source: https://en.coinotag.com/academic-research-indicates-bitcoins-correlations-with-equities-rise-in-economic-stress-periods
