Institutional Adoption and Correlation Dynamics: Bitcoin’s Evolving Role in Financial Markets

ArXiv ID: 2501.09911 “View on arXiv”

Authors: Unknown

Abstract

Bitcoin, widely recognized as the first cryptocurrency, has shown increasing integration with traditional financial markets, particularly major U.S. equity indices, amid accelerating institutional adoption. This study examines how Bitcoin exchange-traded funds and corporate Bitcoin holdings affect correlations with the Nasdaq 100 and the S&P 500, using rolling-window correlation, static correlation coefficients, and an event-study framework on daily data from 2018 to 2025.Correlation levels intensified following key institutional milestones, with peaks reaching 0.87 in 2024, and they vary across market regimes. These trends suggest that Bitcoin has transitioned from an alternative asset toward a more integrated financial instrument, carrying implications for portfolio diversification, risk management, and systemic stability. Future research should further investigate regulatory and macroeconomic factors shaping these evolving relationships.

Keywords: Bitcoin, Rolling-window Correlation, Event Study, Institutional Adoption, Portfolio Diversification, Cryptocurrency/Equity

Complexity vs Empirical Score

  • Math Complexity: 3.0/10
  • Empirical Rigor: 7.5/10
  • Quadrant: Street Traders
  • Why: The paper applies standard statistical methods (rolling correlations, event studies) without advanced mathematical derivations, but features a detailed backtest-ready methodology with specific data sources, preprocessing steps, and time-series results.
  flowchart TD
    A["Research Goal:<br>Bitcoin's Evolving Role in Financial Markets"] --> B{"Key Methodology"}
    B --> C["Rolling-Window Correlation"]
    B --> D["Event Study Framework<br>ETF & Corporate Milestones"]
    B --> E["Static Correlation Coefficients"]
    
    C & D & E --> F["Data Inputs<br>Daily Data (2018-2025):<br>Bitcoin, Nasdaq 100, S&P 500"]
    F --> G["Computational Analysis:<br>Correlation Dynamics & Regime Shifts"]
    
    G --> H{"Key Findings/Outcomes"}
    H --> I["Intensified Correlations:<br>Peaks up to 0.87 in 2024"]
    H --> J["Bitcoin's Integration:<br>Transition from Alternative to<br>Integrated Financial Asset"]
    H --> K["Implications:<br>Reduced Diversification,<br>Risk Management Challenges"]