Shifting dynamics: Bitcoin spot ETF approval and Bitcoin’s relationships with financial markets

Abstract

This study examines how Bitcoin’s relationships with major financial assets evolved following the January 2024 spot ETF approval. Using DCC-GARCH analysis, we find Bitcoin’s correlation with stocks exhibits a complete trend reversal from declining to increasing trends, while other assets show more limited changes. TVP-VAR spillover analysis reveals declining Bitcoin self-spillover and strengthened bidirectional risk transmission with equity markets. These findings indicate the ETF approval altered Bitcoin’s market role, transitioning from decoupling to integration with financial assets and reducing its diversification benefits in equity-focused portfolios.