Haven or High Risk? Decoding Bitcoin’s Unstable Market Role

Key Takeaways

• Bitcoin has risen by 17% since the start of the conflict in Iran, breaking away from the correlation with tech stocks seen last year, while outperforming gold.
• Cryptocurrencies’ correlation with equities is unstable, and it rises in periods of market stress, undermining their diversification case.
• With no clear valuation model, bitcoin remains driven by liquidity, flows, and shifting narratives.

Bitcoin has an asset-allocation identity crisis. For many years, the currency was seen as a useful portfolio diversifier amid turmoil, thanks in part to its outsider history. Then, for periods in 2022 and 2025, bitcoin traded almost in lockstep with technology stocks, making it a “risk asset” in Wall Street jargon. But when the Iran war broke out, bitcoin rallied, even as investors bailed out of stocks and gold.

Throughout its history, bitcoin has variously been described as a digital alternative to gold, an inflation hedge, a diversifier, and a liquidity proxy. To some observers, bitcoin’s rally after the start of the Iran war again reinforced it as a safe haven. But bitcoin continued to gain even as investors decided the war was on a path to resolution, and it moved back into risk assets along with stocks. The latest episode also suggests bitcoin is still searching for its identity. Is it a safe haven, a risk asset, or something else entirely?

The Puzzle of Bitcoin Correlation

Recent data underscores just how unstable bitcoin’s relationship has been with traditional assets. A key concept is correlation—the extent to which securities move in similar or different directions. A correlation of 1 means two investments always move in the same direction, while a correlation of -1 means investments always move in the opposite direction. A coefficient of 0 indicates no correlation.

Bitcoin’s correlation with global equities has hovered around 0.5 so far in 2026, much higher than the pre-2020 norms, when it often approached 0. But it’s also well above the rate recorded in 2023, which stood at 0.11. This suggests an increasing connection to broader market risks. Yet the relationship is far from constant.

“Using weekly data across multi-year horizons, correlation to traditional assets sits around or below 20%,” says Dovile Silenskyte, director of digital assets research at WisdomTree, which sells crypto-based exchange-traded funds. However, that breaks down in periods of stress. “On a day-to-day basis, bitcoin can and does move in line with risk assets when liquidity tightens. That is not a failure of diversification; it is a reflection of global liquidity dominating all assets in the short term,” she says.

For example, in early April last year, bitcoin fell sharply in the wake of US President Donald Trump’s tariff announcement, losing 12% in a week. The drop coincided with a similar selloff in US stocks, especially technology stocks, as investors rapidly exited both equities and bitcoin in a global flight to safety. The same pattern occurred from late 2021 through 2022, when the Federal Reserve increased interest rates and the war in Ukraine started.

However, while bitcoin correlated with technology stocks during past periods of market uncertainty, this doesn’t mean that correlation is stable. According to a study published by Dr. Mark Shore, director and economist at CME Group, the 60-day rolling correlation between bitcoin and the Nasdaq-100 ranged from -0.5 to 0.8 between January 2014 and April 2025, “generally sustaining a higher correlation range of 0.0-0.6 over the last five years.”

The study also noted that bitcoin may appear uncorrelated over longer horizons, but when liquidity tightens and volatility rises, it has tended to move in tandem with equities, at least in the short term.

Can Bitcoin Still Diversify a Portfolio?

For investors, that raises the possibility that the diversification benefits often touted for bitcoin may be least reliable precisely when they are needed most.

As bitcoin and other cryptocurrencies become more mainstream, they get less valuable as portfolio diversifiers. “While correlations against most other major asset classes have remained low in absolute terms, they’ve steadily trended up in recent years. As a result, there’s no guarantee that adding crypto will improve a portfolio’s risk-adjusted returns, especially to the same extent it did in the past,” writes Amy Arnott, portfolio strategist for Morningstar.

Stephen Coltman, head of macroeconomics at 21Shares, says that in a full risk-off environment—when investors flock to only the safest assets—bitcoin is unlikely to be spared. On the other hand, he says the broad crypto market is healthier than it was before last fall’s selloff (which saw bitcoin plunge 30%), with less leverage and increasing institutional participation.

Why Bitcoin Isn’t a Defensive Asset Either

“The ‘portfolio hedge’ narrative does not hold up,” WisdomTree’s Silenskyte says. “Bitcoin is not a defensive asset and should not be positioned as one.” She says that at small allocations, bitcoin can improve long-term portfolio efficiency. “Historically, even a 1%–2% allocation (roughly market-cap neutral) has enhanced risk-adjusted returns." However, “the benefit comes from return dispersion, not downside protection. Investors expecting bitcoin to cushion drawdowns will be disappointed.”

André Dragosch, head of research for Europe at Bitwise, says that while bitcoin is “inferior” as a hedge against the S&P 500, “it is a superior hedge with respect to downside risks in US 10-year Treasury bonds. So in this regard, bitcoin can act as portfolio insurance, not for equity risks but for bond risks.”