As cryptocurrencies, particularly Bitcoin (BTC), become more mainstream, investors have noticed an increasing correlation between BTC and the stock market. Some investors even argue that BTC now functions as a substitute risk asset for the technology sector.
Reference [1] presents a quantitative study on the correlation between BTC and the NASDAQ-100 (NDX) index, the causal relationships between them, and the influence of market sentiment on this relationship. Specifically, the study first employs univariate GARCH(1,1) models to capture volatility persistence in BTC and NDX returns. Second, it applies the DCC-GARCH model to measure time-varying correlations. Finally, it examines the influence of investor sentiment through regression and dynamic correlation analysis based on VIX levels.
The author pointed out,
This study aimed to quantitatively assess volatility spillovers, dynamic conditional correlations, and the moderating role of investor sentiment between Bitcoin (BTC) and the Nasdaq-100 index (NDX). The research specifically examined whether Bitcoin functions as a diversification asset and how market fear, indicated by the V IX, influences the correlation dynamics between BTC and NDX.
The key findings can be summarized as follows. First, both BTC and NDX exhibited significant volatility persistence, with BTC showing higher volatility magnitude and longer persistence (aBTC + [iBTC = 0.9322, (INDX + [iNDX = 0.9839). Second, the dynamic conditional correlation (DCC) between BTC and NDX was found to be varying over time and was significantly intensified during systematic stress events, such as the COVID-19 crisis and periods of monetary tightening. Third, the evidence suggested a weak yet significant bidirectional volatility spillover, particularly indicating that BTC volatility notably influenced NDX volatility during market stress periods. Fourth, investor sentiment (VIX) was identified as a strong moderator, with the regression results (y = 0.0106, p < 0.001) clearly showing that increases in market fear significantly amplified the correlation between BTC and NDX.
In short, the article concluded that,
- Both BTC and NDX showed strong volatility persistence, with BTC exhibiting higher volatility and longer persistence.
- The conditional correlation between BTC and NDX varied over time and intensified during market stress events such as the COVID-19 crisis and monetary tightening periods.
- A weak but significant bidirectional volatility spillover existed, with BTC volatility notably influencing NDX volatility during stress periods.
- Investor sentiment, measured by the VIX, acted as a strong moderator—rising market fear significantly increased the correlation between BTC and NDX.
This paper provides empirical evidence supporting investors’ observations and offers insights that can be integrated into trading and portfolio management frameworks.
Let us know what you think in the comments below or in the discussion forum.
References
[1] Boyu Zhang, From Diversifier to Amplifier? Investigating the BTC—NDX Linkage and the Modulating Role of VIX, Dean&Francis, 2025
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