Comparing Bitcoin and Silver Price Correlations

Bitcoin and silver share similarities as inflation hedges and stores of value, but they differ in volatility, utility, and market behavior. Recent data shows silver has a stronger correlation with Bitcoin (0.26) than gold (0.15) from October 2019 to October 2022. Here's what you need to know:

• Bitcoin: Digital asset, capped at 21 million coins, highly volatile, driven by speculative demand, and influenced by regulatory changes.
• Silver: Physical commodity, used in industries (58% of demand), less volatile, tied to economic cycles, and has centuries of trading history.

Quick Comparison:

Feature	Bitcoin	Silver
Volatility	High (2.87% daily avg.)	Lower (1.32% daily avg.)
Supply	Fixed (21M coins)	Mining-dependent
Utility	None	Industrial and jewelry use
Market Hours	24/7	Limited but expanding
Inflation Response	Quick short-term reaction	Long-term stability
Market Maturity	Emerging asset class	Established with history

Both assets offer unique diversification benefits. Bitcoin provides high-risk, high-reward potential, while silver offers stability with industrial demand. Consider your risk tolerance and goals when allocating these assets in your portfolio.

Pearson Correlation Coefficient Matrix: Crypto, Stocks ...

1. Bitcoin Price Analysis

Since its debut in 2009, Bitcoin has transitioned from an independent asset to one that mirrors traditional markets more closely, especially since 2020.

Bitcoin's price trends now often align with broader market movements, as seen in key moments:

Time Period	Bitcoin Price Event	Market Context
March 2020	Lost over 50% of value in 2 days	COVID-19 market crash
March 2021	Hit a record high	Nasdaq peak period
November 2021	Correlation with markets strengthened	Mining stocks surged
January 2023	Recovery rally post-FTX	Coinbase shares climbed

In 2020, institutional investors poured $6 billion into digital asset products, an eightfold increase from 2019.

Bitcoin's price volatility stems from several factors:

• Supply Constraints: With a fixed cap of 21 million coins, scarcity grows as circulation approaches the limit.
• Institutional Concentration: By 2020, the top 10,000 investors held a third of all Bitcoin.
• Regulatory Changes: Policy shifts, like China's 2021 crypto ban, often lead to sharp price fluctuations.

Data also shows Bitcoin's growing link to risk assets during market stress. For instance, between October 2019 and October 2022, small-cap growth funds had a 0.41 correlation coefficient with Bitcoin, compared to 0.35 for small-cap value funds.

In late 2023, Bitcoin's price jumped from $27,000 to over $43,000, mainly due to investor optimism around potential ETP approvals. This evolving trend offers an interesting contrast to the price behavior of silver.

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2. Silver Price Analysis

Silver prices are influenced by a mix of economic conditions and market sentiment. During the Great Recession, for example, silver rose from $14.76/oz in December 2007 to $19.24/oz in February 2008, only to drop to $9.09/oz by October 2008.

Unlike Bitcoin, which exists solely in the digital realm, silver plays multiple roles across industries:

Demand Component	Percentage	Impact on Price
Industrial Usage	58%	Closely tied to economic performance
Jewelry	27%	Acts as a price support floor
Investment	15%	Fuels speculative price movements

This range of uses creates unique price patterns. Financial market analyst Kar Yong Ang explains: "Silver is much more sensitive to economic cycles than gold because silver's investment thesis is less pronounced while its industrial usage is more widespread".

Silver also has a strong connection to traditional assets. Between July 1982 and October 2024, it maintained a high correlation of 0.92 with gold, highlighting its importance in investment portfolios.

Following the 2008 financial crisis, silver prices skyrocketed to $48.70/oz by April 2011. For investors who bought at the November 2008 low, this represented a massive 350% return. This period also saw the gold-to-silver ratio peak at 80:1.

Several broader economic factors play a role in shaping silver prices:

Factor	Relationship	Market Impact
U.S. Dollar Strength	Inverse	A weaker dollar often pushes silver prices higher
Interest Rates	Inverse	Lower rates make silver more attractive
Industrial Demand	Mixed	Manufacturing growth can boost prices, but rising costs may limit demand
Inflation	Direct	Higher inflation increases silver's appeal as a hedge

These factors not only drive silver's price movements but also influence its relationship with digital assets. Silver’s relatively stronger correlation with digital assets, compared to traditional ones, offers unique diversification opportunities.

Investment Comparison

This section dives into how Bitcoin and silver stack up as investment options, building on the earlier analysis of their prices and market behavior. From 2018 to 2022, their volatility metrics highlight differing risk-reward profiles: Bitcoin saw an average daily change of 2.87%, while silver was steadier at 1.32%.

Silver's broad range of uses helps stabilize its price, whereas Bitcoin's digital nature drives its higher volatility. Here's a quick comparison:

Investment Aspect	Bitcoin	Silver
Average Daily Volatility (2018–2022)	2.87%	1.32%
Market Hours	24/7 trading	Limited hours traditionally, though digital platforms now allow round-the-clock access
Physical Backing	Digital asset	Physical commodity
Industrial Utility	None	High industrial demand
Supply Characteristics	Capped at 21M coins	Mining-dependent supply
Inflation Response	Reacts quickly in the short term	Provides long-term stability

The way investors access these assets has also evolved. Silver used to require physical storage or brokerage accounts, but digital platforms now make it easier to trade. Similarly, cryptocurrency exchanges offer Bitcoin trading with greater convenience, though investors must weigh risks like custody issues and evolving regulations.

Jason Porter, senior investment manager at Scottish Heritage SG, provides an interesting perspective:

"A hedge against inflation would typically increase in value in line with the sharp rise in consumer prices. However, during some of the most recent, extreme moments of inflation in the U.S., gold has produced a negative return for investors."

Market maturity is another critical factor. By 2025, less than 4% of the global population owns Bitcoin, showing its status as an emerging asset. Silver, on the other hand, has a long-established market presence.

Risk Factor	Bitcoin	Silver
Market Maturity	Emerging asset class	Centuries of trading history
Price Drivers	Mainly speculative	Combination of industrial and investment demand
Storage Risk	Cybersecurity concerns	Physical security challenges
Market Depth	Limited but expanding	Well-established and deep markets
Regulatory Environment	Still developing	Clear and well-defined regulations

For portfolio diversification, silver offers stability with its ties to traditional assets and industrial demand. In contrast, Bitcoin provides the chance for higher returns but comes with greater risk. StoneX Bullion analysts add:

"silver is more volatile than gold but can offer higher returns, albeit with greater risk. If you're prepared for a wild, volatile ride and can take the extra risk, then silver can be a good investment for you."

Conclusion

Research indicates that silver shares a stronger correlation with Bitcoin than gold does. As Bitcoin becomes increasingly intertwined with traditional markets, this trend is becoming more apparent. These insights highlight the shifting relationship between digital and traditional assets.

For investors, a portfolio strategy could include allocating around 5% to cryptocurrencies while leveraging silver for diversification. It's essential to adjust these allocations based on individual risk tolerance to balance potential risks and returns.

"Silver has the highest correlation, peaking at 0.26 for silver and bitcoin. Bitcoin, the so-called 'digital gold,' exhibits only weak correlation with the precious metal."

This connection opens doors for strategic diversification. However, investors should remain cautious - Bitcoin's price volatility can quickly alter these correlations. Since cryptocurrency correlations differ, it's crucial to design portfolios that account for the unique behavior of each asset.