Jumped the correlation between Bitcoin and luxury watches

With the rise in the price of Bitcoin at the end of 2023, the correlation with luxury watches has ended.

This correlation started at the end of 2020, when the last major bull run began. 

The bull run of luxury watches and the correlation with Bitcoin (BTC)

Taking as a reference the WatchCharts Overall Market Index, which is an index of the performance of luxury watches on the secondary market, it is discovered that in January 2021 its value was approximately $27,300.

In just over a year, it reached its all-time high in March 2022, at an incredible level of almost $48,000. 

Moreover, the large liquidity injection into the markets by the Fed, which began in March 2020 and lasted until March 2022, has not only resulted in inflation in consumer prices, but has also inflated the large speculative bubble in the financial markets in 2021. 

In 2022, however, it turned out to be a real bear market even for luxury watches, with the WatchCharts Overall Market Index falling below $35,000. 

The problem is that this bear-market for the luxury watch market doesn’t seem to have ended yet. 

In fact, during 2023 the index dropped below $30,000, and in this first month of 2024 it has also dropped below $29,700. 

Although current values are still higher than those before the 2021 bull run, it is a nearly continuous decline that has been going on for almost two years. 

However, it must be said that starting from the minimum peak of the bear market on January 13, 2024, the decline seems to have stopped for now. 

The correlation with Bitcoin

The trend of the BTC price was similar until at least April of last year.

In fact, in 2021 Bitcoin had also risen significantly, only to crash in 2022. 2023 had started with a strong rebound, which also partially affected the luxury watch market. 

In May 2023, the collapse of the luxury watch market resumed, without stopping until a few weeks ago. 

Instead, already in the second half of June last year, the price of Bitcoin had recorded a first rebound, after the decline in May and then in early June.

In the second half of October, the apparent correlation completely dissolved. 

In fact, while the price of BTC was starting to rise from $28,000 to about $35,000, the WatchCharts Overall Market Index was falling from $30,900 to $30,400. 

Following that, the price of Bitcoin continued to rise above $40,000, while the luxury watch index dropped below $30,000.

The causes of the de-correlation between Bitcoin and luxury watches

The causes of this de-correlation are to be found exclusively among those that have caused the price of Bitcoin to skyrocket. 

In fact, the WatchCharts Overall Market Index simply continued to decline even in the second half of 2023, albeit to a lesser extent, while for Bitcoin it was a real turning point, after several months of sideways movement between $25,000 and $32,000.

The rise in the price of Bitcoin at the end of 2023 was caused by three main factors. 

The first, namely the one that first triggered the rebound, was definitely the anticipation for the likely approval of the new ETFs on Bitcoin spot in the USA. In fact, the first rebound due to this news is precisely the one at the end of June. 

Secondly, the new expansionary monetary policy of the Chinese central bank, which started in September, may have had an influence. 

The balance sheet of the PBoC had remained essentially unchanged until August, just above 40,000 billion CNY. 

In September, it had already risen well above 42,000 trillion, reaching almost 46,000 trillion in December. This growth trend perfectly corresponds in terms of timing to the rise in the price of Bitcoin from around $28,000 to over $40,000. 

The third one was the end of the year, since very often the annual highs and lows of the BTC price are recorded at the end of the year, especially in November and December.

The maximum of 2017 was recorded in December, the minimum of 2018 in November, the maximum of 2020 in December, the maximum of 2021 in November, and the minimum of 2022 in November. 

Bitcoin as a safe haven asset

However, all of this is not enough to define Bitcoin as a safe haven asset. 

Certainly, in a period where the performance of Chinese stocks has been poor, and while waiting for a possible approval of BTC spot ETFs in Hong Kong, it is absolutely possible that the attention of many Chinese investors has shifted to Bitcoin as a risk-on asset capable of generating significant returns.

It is not a direct competitor of gold, but it is actually a risk-on alternative to what is, instead, a safe haven asset (gold, to be precise).

On the other hand, not all investors like risk-off safe-haven assets that always produce very limited gains, even though they generally at least contain losses. 

Risk lovers definitely prefer an asset that may produce more losses when it goes down, but when it goes up it certainly generates more interesting returns.