Can Bitcoin Be an Alternative Investment When Stocks Trade Sideways? Volatility Matters More Than Correlation
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Bitcoin does not automatically offer profit opportunities as a substitute for stocks simply because the stock market is trading sideways. Long-term data reviewed as of 2026-09-17 shows that Bitcoin has provided diversification benefits during certain periods. However, since 2020, there have been more periods when Bitcoin and stocks moved together, while Bitcoin's price fluctuations have been much larger than those of stocks.
Therefore, rather than asking, 'Should I move into Bitcoin when stocks are not rising?' a more practical investment question is, 'Can I tolerate greater volatility while adding a source of returns that differs from my existing stock investments?'
Bitcoin Does Not Necessarily Rise When Stocks Trade Sideways
What matters in diversification is not whether two assets always move in opposite directions, but how independently they move.
A correlation coefficient close to +1 indicates a strong tendency to move in the same direction, while a coefficient closer to 0 indicates a weaker relationship between the movements of two assets. A coefficient close to -1 indicates that they move in completely opposite directions.
The relationship between Bitcoin and stocks has changed significantly depending on the period examined.
An analysis of daily returns from January 2014 through 2025-04-14 found a correlation coefficient of 0.20 between Bitcoin and the S&P 500. However, the picture changes when the period is divided into shorter intervals.
The coefficient was -0.01 during 2014–2016, 0.01 during 2017–2019, 0.40 during 2020–2022, and 0.30 from 2023 through 2025-04-14.
In other words, a single long-term figure is not enough to conclude that Bitcoin is an asset unrelated to stocks.
Bitcoin Has Sometimes Moved Alongside Stocks During Market Turmoil
This point is especially important if the reason for seeking an alternative investment is to avoid the risk of falling stock prices.
Since 2020, the positive correlation between Bitcoin and stocks has increased during certain periods of heightened market stress. During 2–March in 2020, the correlation coefficient between Bitcoin and the S&P 500 was 0.56, while it was 0.69 during November 2021–December 2022.
The maximum drawdowns during those periods were also substantial. In the analysis covering 2–March in 2020, Bitcoin fell 53% and the S&P 500 declined 35%. During November 2021–December 2022, they fell 75% and 28%, respectively.
Therefore, constructing a portfolio on the assumption that Bitcoin will necessarily rise when stocks fall is inconsistent with historical data.
Analyses covering 2025 and early 2026 also found that correlations between cryptoassets and the Nasdaq 100 reached between +0.35 and +0.60, depending on the period.
In a Sideways Market, the Size of Price Swings Matters More Than Returns
Bitcoin's most significant difference from stocks is not necessarily the direction of its price movements, but their magnitude.
For daily returns over January 2014–2025-04-14, the standard deviation was 1.12% for the S&P 500 and 4.27% for Bitcoin. A simple calculation shows that Bitcoin's daily volatility measure was approximately 3.8 times higher.
The difference remained substantial in more recent periods. Over January 2023–2025-04-14, the daily standard deviation was 0.99% for the S&P 500 and 3.24% for Bitcoin. According to the author's calculation, that represents a difference of approximately 3.3 times.
Consequently, moving money into Bitcoin simply because small stock-market fluctuations feel frustrating does more than introduce a new source of returns. It can increase the portfolio's overall exposure to price volatility.
An investor trying to escape a stagnant stock market may instead end up accepting much larger price swings.
Does That Mean Bitcoin Offers No Diversification Benefits?
That conclusion would also be too simplistic.
Long-term research published in 2026 found that Bitcoin exhibited low long-term correlations with traditional assets. Another analysis reported a correlation coefficient of 0.53 between Bitcoin and the S&P 500 from 2022 through the 1 quarter of 2026.
Because 0.53 is not 1, it does not mean that the two assets move in exactly the same way. At the same time, because it is neither 0 nor a negative value, it is difficult to interpret Bitcoin simply as an asset that offsets stock-market risk.
This is where the distinction between 'substitution' and 'diversification' becomes important.
Selling stocks and switching into Bitcoin is closer to replacing one investment with another. By contrast, adding a limited Bitcoin allocation to an existing stock-and-bond portfolio is a question of diversification.
Recent institutional research has primarily examined the latter approach.
An analysis of historical data from 10, published in August 2026, found that adding a 1–2% Bitcoin allocation to a traditional portfolio consisting of 60% in stocks and 40% in bonds improved historical risk-adjusted returns.
However, this was a finding based on historical data. It does not mean that allocating 1–2% to Bitcoin in the future will produce the same result.
Deciding How Much to Put Into Bitcoin Instead of Stocks Can Be Risky
When considering a Bitcoin allocation, a more practical approach is to calculate how much loss you can tolerate before focusing on expected returns.
For example, suppose total investment assets amount to KRW 100,000,000 and Bitcoin accounts for 2% of the portfolio. The amount invested in Bitcoin would be KRW 2,000,000.
If Bitcoin's price were assumed to fall 50%, the loss on the Bitcoin portion would be KRW 1,000,000. Assuming the prices of all other assets remained unchanged, the impact on the overall portfolio would be approximately -1%.
Conversely, if KRW 20,000,000, representing 20% of the same KRW 100,000,000 in total assets, were allocated to Bitcoin, the same assumed 50% price decline would result in a loss of KRW 10,000,000, affecting total assets by approximately -10%.
This is not a forecast of investment returns. It is a simple calculation illustrating how the same price decline can affect total assets differently depending on portfolio allocation.
Historically, Bitcoin has experienced major drawdowns of 40–70% on multiple occasions. Therefore, when deciding how much to invest, it is necessary to consider not only how much Bitcoin might rise, but also whether the investment plan could be maintained through declines of that magnitude.
Three Things to Check When Stocks Are Trading Sideways
First, is the current correlation between stocks and Bitcoin low? A low long-term average correlation does not guarantee that the current correlation is also low.
Second, how much does adding Bitcoin increase the risk of the overall portfolio? Even a relatively small Bitcoin allocation can have a substantial impact on total portfolio volatility.
Third, is there an investment strategy that can be maintained even after the stock market stops moving sideways? Money shifted into Bitcoin simply out of frustration with stagnant stock returns may be moved again when Bitcoin experiences a sharp correction. In that case, the strategy resembles short-term asset switching more than genuine diversification.
If the investment case for Bitcoin depends entirely on whether the stock market is trading sideways, that rationale disappears as soon as stocks begin moving again.
Bitcoin Is Better Viewed as a Separate High-Risk Asset Than as a Substitute for Stocks
Taken together, the available evidence indicates that Bitcoin is not identical to traditional stocks and bonds. There have also been periods when it contributed to long-term portfolio diversification.
At the same time, since 2020, Bitcoin has shown positive correlations with stocks during certain periods, and there have been instances when both Bitcoin and stocks suffered substantial declines during heightened market uncertainty.
Therefore, when considering Bitcoin during a sideways stock market, the decision is less about choosing between 'stocks or Bitcoin' and more about whether to introduce different risk-and-return drivers through an allocation that is manageable within the overall portfolio.
For that decision, establishing allocation limits, assessing correlations and potential maximum losses, and defining rebalancing rules are more important than focusing on expected returns alone. Rather than being a way to escape the boredom of a stagnant stock market, Bitcoin is closer to a choice to add another source of returns in exchange for accepting greater volatility.
※ This article is provided for informational purposes to help readers understand market trends and does not constitute an investment recommendation for any particular security or asset. All final investment decisions and responsibilities rest with the individual investor.
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