In brief Academic literature increasingly finds that crypto and equities are tightly intertwined, especially during periods of stress. Studies find that crypto increasingly behaves like a high-beta tech sector. An academic consensus is forming that crypto is now firmly embedded in the global risk ecosystem. Professor Andrew Urquhart is Professor of Finance and Financial Technology and Head of the Department of Finance at Birmingham Business School (BBS). This is the tenth installment of the Professor Coin column, in which I bring important insights from published academic literature on cryptocurrencies to the Decrypt readership. In this article, I discuss how crypto’s relationship with equities has evolved.
### Shifting Perceptions of Bitcoin’s Role
Historically, Bitcoin was promoted as the ideal investment for diversification, touted as an asset that would remain unaffected by fluctuations in equity markets. Initial academic studies supported this narrative, with researchers Liu and Tsyvinski (2021) indicating that major cryptocurrencies showed little correlation with traditional financial instruments such as stocks, bonds, and foreign exchange. They concluded that the returns from cryptocurrencies were primarily influenced by factors unique to the crypto space, including momentum and investor interest, rather than shifts in the equity market.
### From “Uncorrelated” to “Just Another Risky Asset”
In recent years, however, this perspective has dramatically changed. New research indicates a strong interconnection between cryptocurrencies and the stock market, particularly during periods of market volatility. A study by Adelopo et al. (2025) reveals significant time-varying and non-linear relationships between crypto and stock markets, with these ties becoming especially apparent amid major macroeconomic events like the COVID-19 pandemic or the ongoing Russia-Ukraine conflict. Further investigations focusing on tech-related stocks have corroborated these findings, with evidence showing that cryptocurrency markets now serve as a conduit for risk transmission to the equity market.
### Recent Findings on Crypto and Equity Interactions
Several recent studies explicitly highlight the relationship between cryptocurrencies and equities. Vuković (2025) employs a Bayesian Global VAR model to demonstrate that negative shocks in the cryptocurrency market can adversely affect stock prices, bond indices, exchange rates, and volatility measures across various countries, not limited to the U.S. Ghorbel and colleagues (2024) investigate the connections among major cryptocurrencies, G7 stock indices, and gold, finding that cryptocurrencies have become significant transmitters and receivers of market shocks, particularly during turbulent financial periods. Additionally, Lamine et al. (2024) analyze spillover effects between U.S. and Chinese stocks and cryptocurrencies, revealing substantial risk transfers from crypto to these markets, particularly in volatile situations. Furthermore, Sajeev et al. (2022) document how Bitcoin influences major stock exchanges, using volatility spillover analysis from 2017 to 2021. The International Monetary Fund (IMF) echoes these findings in a departmental paper, stating that Bitcoin shocks account for a notable portion of global equity volatility, a trend that has intensified with the growth of institutional markets.
### The Reasons Behind the Increased Correlation
The shift in Bitcoin’s behavior towards that of a high-beta tech stock can be attributed to several factors. First, both cryptocurrencies and growth equities represent investments reliant on uncertain future cash flows or network value. As interest rates increase, the impact of discount factors becomes pronounced, leading to simultaneous sell-offs in both asset classes. Second, the trading environment for both sectors is characterized by retail trading, momentum-based strategies, and a variety of derivatives, which can amplify shocks across markets. Lastly, as cryptocurrencies have been integrated into multi-asset and hedge fund portfolios, their performance becomes interconnected with traditional asset classes. Consequently, during periods of risk aversion, all assets categorized as “risky” tend to be sold off together.
### Implications for Portfolio Management and Risk Assessment
For those involved in portfolio management, the implications of these findings are both challenging and clear. While cryptocurrencies can offer diversification benefits in stable periods—showing modest correlations in calmer market environments—these correlations tend to spike during times of stress, when diversification is most sought after. Bitcoin and other significant altcoins appear to behave less like “digital gold” and more like leveraged indicators of global risk sentiment. This realization complicates the previously held notion that a 5-10% allocation to crypto assets could be viewed as a stable, uncorrelated investment.
Looking ahead, a pertinent question remains for both scholars and market participants: will the introduction of spot ETFs and wider institutional adoption further reinforce these connections, or might new applications—such as practical payment and settlement use cases—foster more distinct drivers of crypto value? For the time being, the evidence strongly suggests that in a global financial downturn, cryptocurrencies no longer remain passive; they are increasingly susceptible to the same pressures affecting the broader market.
