Oil's 75% year-to-date surge has flipped its correlation with Bitcoin and US equities decisively negative, signaling that geopolitical risk is being priced first and most aggressively in energy markets.
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Oil's 75% surge flips Bitcoin correlation negative as war risk rewires markets
Oil's 75% year-to-date rally has inverted its correlation with Bitcoin and US equities, a divergence that Kaiko Research says highlights how Middle East tensions are being priced most aggressively in energy markets.
"The renewed flare-up in regional tensions has pushed crude sharply higher year-to-date and flipped correlations with Bitcoin and US equities decisively negative — an unusual cross-asset divergence," Kaiko Research said in a note.
Brent crude traded at $98.96 a barrel on May 26 after US Central Command conducted strikes on missile launch sites and vessels suspected of mine deployment in southern Iran, according to a statement. The operation undermined expectations that Washington and Tehran were nearing a diplomatic resolution, with Iran's foreign minister in Doha for talks that have yet to yield a breakthrough. Bitcoin's 30-day realized correlation with crude turned negative for the first time since the conflict began, while the S&P 500's correlation with oil also flipped negative.
The breakdown of the traditional risk-on relationship means capital is rotating out of speculative assets into commodities, pressuring Bitcoin prices and increasing equity market volatility. With Brent hovering near $100 and diplomatic talks yet to produce a deal, the divergence could widen further. The last time oil surged past $95 on geopolitical shock — during Russia's invasion of Ukraine in 2022 — the S&P 500 fell 13% over the following three months while the Bloomberg Commodity Index gained 18%.
Cross-Asset Transmission
The negative correlation extends beyond crypto. Indian equities fell on May 26, with the BSE Sensex dropping 479 points to 76,009.70 and the Nifty declining 118 points to 23,913.70, as a sharp rebound in crude revived concerns over imported inflation and fiscal pressure. The Indian rupee weakened 0.47% to 95.68 against the dollar, while gold futures in India slid to 157,000 rupees per 10 grams as dollar demand strengthened.
US dollar index held near 99.03 on Tuesday, while the Japanese yen traded at 158.95 per dollar. Asian equities were mixed, with South Korea's Kospi jumping 2.9% to a record high on peace-deal optimism that was quickly tempered by the fresh strikes.
What's at Stake
The Strait of Hormuz handles about 21% of global oil trade, and any sustained disruption keeps the war premium embedded in crude prices. For import-dependent economies like India, every $10 increase in oil prices widens the current account deficit by roughly 0.4% of GDP, according to historical central bank estimates. For Bitcoin, the negative correlation with oil introduces a new macro headwind at a time when the token is already struggling to hold above the $79,000 to $80,000 range, with elevated US Treasury yields and weak institutional appetite weighing on sentiment.
Iran has indicated it would open the Strait of Hormuz 30 days after reaching a deal to end hostilities, the Nikkei newspaper reported. Until that agreement materializes, the divergence between energy and risk assets is likely to persist.
This article is for informational purposes only and does not constitute investment advice.
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