May 16, 2022

Bitcoin Correlation With S&P 500 at 5-Month High: Is This Bearish for BTC?

3 min read

Bitcoin and standard financial markets have actually been extremely associated over the previous number of months. This was plainly displayed over the past number of weeks where the cryptocurrency followed stocks closely.

BTC and S&P 500 Correlation Surging

Data from the cryptocurrency analytics resource alter shows that the realized correlation in between Bitcoin’s price and the S&& p 500 has actually surged to a 5-month high. The last time it was at these levels was back in November 2020.

Bitcoin – S&P 500 Realized Correlation. Source: Skew There are plenty of reasons for which this might be the case, however possibly the most obvious one is the involvement of institutional investors in the cryptocurrency field.

It was reported on various events that institutional interest in the nascent property class is surging as big-name business flooded the market to get their slice of the pie. Grayscale, which is among the main opportunities for wise cash to gain access to direct exposure to BTC’s cost without having to stress over custody, saw its asset under management skyrocket over the previous couple of months.

< script async src =""charset ="utf-8"> In fact, as CryptoPotato reported earlier in February, the business’s CEO, Michael Sonnenschein, said that institutional interest in Bitcoin is speeding up in 2021.

In any case, there are a couple of implications of the skyrocketing correlation, and we’re having a look at whether this is great or bad for bitcoin’s price.

The Bearish Argument

Correlation to stocks indicates a couple of things, but the most crucial one is definitely the reality that BTC stops working as a hedge against the traditional monetary system, in basic. If Bitcoin is relocating line with stocks, then it’s not acting as a hedge – – something that numerous advocates are throwing their weight behind.

This has implications by itself. For example, a couple of days ago, we reported that a person of the factors for Bitcoin’s recent 25% correction could be the truth that Wall Street went crashing too. Back then, NASDAQ went through its greatest depression considering that October 2020. The catalyst was that federal government bond yields provided the market a shock, and investors preferred business that would take advantage of a broader financial recovery throughout the rest of the year. Speaking on the matter was Peter Tuz, president of Chase Investment Counsel, who stated:

“Rates matter. At 1.5%, the yield is equivalent to S&P 500 dividend yield. […] And there’s no capital risk with a 10-year, you’ll get your principal back. Suddenly it’s competitive with stocks.”

To put it simply, wider macroeconomic occasions would require to be factored in bitcoin’s cost development in a manner where it’s correlated to the stock exchange. That’s not a situation where investors would want to remain in. After all, we saw what took place last March when the coronavirus pandemic was announced, and markets (including Bitcoin) saw one of the worst corrections in history.

The Bullish Argument

Well, as much as it might be bearish, it could likewise be bearish. Remember, in the case of high connection, as we pointed out above, broader macroeconomic events would need to be factored in bitcoin’s rate development.

The US House of Representatives passed President Biden’s $1.9 trillion stimulus bill the past weekend. This sent out the bill to the Senate for a vote, and if it succeeds, it would be another major injection in the economy. We already saw what the previous ones did to the stock markets.

If bitcoin stays associated to them, this ought to favor its rate as well.

All in all, a high correlation with tradition markets is unlikely to be thought about a good idea in the long term. For bitcoin to serve as a hedge, along with a means of “opting out” of the status quo, it needs to perform completely separately from standard possessions.