The rapid rise of blockchain-based cryptocurrencies has transformed the global financial landscape, attracting both individual and institutional investors seeking high-growth opportunities. As digital assets like Bitcoin, Ethereum, Cardano, and Chainlink continue to break all-time highs, understanding their relationship with traditional investment instruments—such as the S&P 500 and US 10-year Treasury bonds—has become crucial for portfolio optimization. This article explores the correlation between major cryptocurrencies and conventional financial indicators using Granger causality testing, offering data-driven insights for modern investors.
Understanding Blockchain and Cryptocurrencies
Blockchain technology represents a decentralized digital ledger that records transactions across a network of computers without relying on central authorities like banks or governments. This innovation enables peer-to-peer (P2P) value transfer, enhances transparency, and ensures data immutability—making it highly secure and resistant to tampering.
Bitcoin, introduced in 2009 by Satoshi Nakamoto, was the first successful application of blockchain technology. Since then, numerous alternative cryptocurrencies (altcoins) have emerged, including Ethereum, Cardano, and Chainlink, each offering unique functionalities such as smart contracts and decentralized finance (DeFi) solutions.
Cryptocurrencies are increasingly viewed not just as speculative assets but as viable components of diversified investment portfolios. Their growing adoption is supported by technological advancements, increasing regulatory clarity, and broader public awareness.
👉 Discover how blockchain is reshaping modern investing—explore real-time market data today.
Research Objectives and Hypotheses
This study aims to analyze the causal relationships between selected cryptocurrencies and traditional financial instruments over a one-year period (January 2020 – January 2021). The primary focus is on determining whether movements in Bitcoin are influenced by:
- S&P 500 Index
- US 10-year Treasury yields
- Major altcoins: Ethereum (ETH), Cardano (ADA), and Chainlink (LINK)
The research tests the following hypotheses:
- H₀ (Null Hypothesis): Bitcoin is not affected by the S&P 500 Index, US 10-Year Treasury, or altcoin values.
- H₁ (Alternative Hypothesis): Bitcoin is affected by these variables.
By applying Granger causality analysis—a statistical method used to determine whether one time series can predict another—this study provides empirical evidence on the interdependencies between digital and traditional assets.
Methodology: Data Collection and Analytical Framework
Weekly price data for Bitcoin, Ethereum, Cardano, Chainlink, the S&P 500 Index, and US 10-year Treasury bonds were collected from a financial database. The Federal Reserve’s interest rate decisions during the same period were also analyzed to assess macroeconomic influences.
To ensure data accuracy, logarithmic transformations were applied to stabilize variance. Stationarity was tested using unit root tests (ADF, PP, KPSS), and differencing was applied where necessary. A dummy variable was introduced to account for the impact of coronavirus vaccine announcements—a significant market-moving event during the study period.
The model used is expressed as:
ΔYₜ = c + α₁ΔEₜ + α₂Aₜ + α₃ΔLₜ + α₄Sₜ + α₅Mₜ + εₜWhere:
- ΔYₜ = Change in Bitcoin price (dependent variable)
- Eₜ = Ethereum, Aₜ = Cardano, Lₜ = Chainlink
- Sₜ = S&P 500 Index, Mₜ = US 10-Year Treasury
- εₜ = Error term
Key Findings: Returns, Risk, and Correlation
Performance Comparison (1-Year Average Return)
| Asset | Average Return | Risk Ranking (Std Dev) |
|---|---|---|
| Chainlink | 6.22% | Highest |
| Cardano | 5.74% | High |
| Ethereum | 5.20% | Medium-High |
| Bitcoin | 3.61% | Medium |
| FED Interest | 0.47% | Lowest |
| S&P 500 | 0.36% | Low |
| US Treasury | -0.02% | Medium-High |
Chainlink delivered the highest return during the period but came with the greatest volatility. In contrast, the US 10-year Treasury posted a slight loss and exhibited higher risk than Bitcoin—challenging its reputation as a "safe haven" asset during this timeframe.
Covariance and Linear Relationships
Analysis revealed several key correlations:
- Bitcoin shows a strong positive linear relationship with Ethereum, meaning their prices tend to move together.
- Bitcoin has increasing relationships with Cardano and Chainlink, though less pronounced than with Ethereum.
- A decreasing linear relationship exists between Bitcoin and both FED interest rates and US Treasury yields, indicating that rising interest rates may negatively impact Bitcoin prices.
- No significant correlation was found between Bitcoin and the S&P 500 Index, suggesting that stock market movements did not directly influence Bitcoin during this period.
Ethereum also showed positive links with Cardano and Chainlink but had no meaningful connection with the S&P 500 or Treasury bonds.
👉 See how top-performing digital assets are influencing global markets right now.
Implications for Investors
The findings suggest that including cryptocurrencies in an investment portfolio can enhance returns while introducing different risk dynamics compared to traditional assets. Notably:
- Altcoins like Chainlink and Cardano offer higher return potential than both Bitcoin and conventional instruments.
- Despite higher volatility, some altcoins outperformed traditional safe-haven assets like US Treasuries.
- Diversification benefits exist due to low or negative correlations between crypto assets and certain macroeconomic indicators.
These insights support the integration of digital currencies into modern portfolio theory frameworks, particularly for investors seeking non-correlated assets to hedge against market fluctuations.
Frequently Asked Questions (FAQ)
Q: Does Bitcoin move with the stock market?
A: This study found no statistically significant correlation between Bitcoin and the S&P 500 Index during the 2020–2021 period. While both may react to macroeconomic news, their price movements were largely independent.
Q: Are cryptocurrencies riskier than government bonds?
A: Generally yes—but context matters. While altcoins like Chainlink showed higher volatility than US Treasuries, the Treasury itself underperformed with a near-zero return. In this case, Bitcoin proved less risky than the Treasury based on return-to-risk ratios.
Q: Can Ethereum predict Bitcoin’s price movements?
A: Yes. The Granger causality test confirmed a meaningful relationship: a 1-unit increase in Ethereum’s value correlates with a 0.85-unit rise in Bitcoin’s price, indicating strong interdependence.
Q: Why did US Treasury returns turn negative?
A: Due to low yields and inflation pressures during the pandemic recovery phase, real returns on long-term bonds turned slightly negative when adjusted for purchasing power loss.
Q: How does Fed interest rate affect crypto prices?
A: The data shows a decreasing linear relationship—when interest rates rise, crypto prices tend to fall. This aligns with investor behavior shifting toward yield-bearing assets during tightening cycles.
Q: Is now a good time to invest in altcoins?
A: Historical performance suggests high reward potential—but also high risk. Investors should assess their risk tolerance and consider allocating only a portion of their portfolio to volatile assets like altcoins.
👉 Stay ahead of market trends—access live crypto analytics and tools here.
Conclusion
Cryptocurrencies have evolved beyond niche digital experiments into significant financial instruments with measurable correlations to traditional markets. This study confirms that while Bitcoin remains interconnected with major altcoins like Ethereum, its relationship with stock indices and government bonds is more complex and often negligible.
For investors, integrating blockchain-based assets into portfolios offers diversification benefits and enhanced return potential—especially when leveraging high-growth altcoins. However, careful risk management is essential given their inherent volatility.
As central banks explore digital currencies and institutional adoption grows, the boundaries between traditional finance and decentralized systems will continue to blur. Future research should expand this analysis to include gold, oil, foreign exchange rates, and post-pandemic market behaviors to provide even deeper insights.
Core Keywords:
Bitcoin, Ethereum, Cardano, Chainlink, S&P 500, US 10-year Treasury, cryptocurrency correlation, Granger causality test