The Bitcoin-to-Gold Ratio and Its Influence on U.S. Stock Market Returns Post-COVID-19

A groundbreaking study published in Finance Research Letters (Volume 81, July 2025) analyzed the effect of the Bitcoin-to-gold (BG) ratio on U.S. stock market returns from August 7, 2015, to December 30, 2024. The research focused on different periods surrounding the COVID-19 pandemic and uncovered significant findings about the evolving relationship between cryptocurrencies and traditional markets.

Key Findings:

• The BG ratio showed a positive influence on U.S. stock returns during the pandemic and post-pandemic periods, indicating that investors became more open to risk and turned to Bitcoin relative to gold when seeking growth.
• In contrast, the pre-pandemic period showed no significant impact of the BG ratio on stock market returns.
• The study further confirmed the robustness of these results by substituting Bitcoin with Ethereum, proving the effect extends beyond a single cryptocurrency.

Mechanism Explored: The study explains these results through the risk aversion channel. A rising BG ratio reflects increased investor appetite for risk, which correlates with improved stock market performance. This suggests cryptocurrency markets are becoming increasingly integrated with traditional financial markets, especially in times of economic uncertainty and recovery.

What This Means for Investors: Understanding the BG ratio's influence on stock returns can help investors adjust strategies in response to shifting market dynamics, especially in volatile or uncertain economic periods.

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