Bitcoin Correlation With S&P 500 Falls To FTX Collapse Levels But Why?
The word correlation is from wooden cubes. Background from wooden letters. Finance and economics.
Over the years, Bitcoin has shown an increasingly strong positive correlation with the S&P 500 and other major US stock market indices. When the correlation weakens and becomes negative, the price movements in BTC can be particularly significant.
The top cryptocurrency is now showing the biggest daily negative correlation since the FTX-fueled market collapse, but what does this say about what’s to come in crypto and stocks?
Bitcoin and stock market correlations explained
Correlation is when two assets share a commonality in price action. The Pearson correlation coefficient measures the linear correlation of two data inputs, in this case BTCUSD and the S&P 500.
Correlations can be positive, negative or neutral. Measurements range from -1 to 1 and become stronger or weaker the further away from 0 the correlation moves. Zero correlation means that there is no indication of a negative or positive relationship between two assets.
Certain events can take place that cause correlations to change abruptly, such as the FTX collapse that was exclusive to the cryptocurrency industry. When this happened, Bitcoin and altcoins took a bloodbath, while the stock market recovered from a low.
Now, BTCUSD’s correlation with the S&P 500 has again turned negative on the daily time frame, but there doesn’t seem to be any significant shock to either market to create such a sudden divergence.
Currently at a negative correlation between BTC and SPX | BTCUSD on TradingView.com
What the sudden negative correlation with the S&P 500 could mean
Over the past few days, the stock market has drifted lower, which Bitcoin has been quite resilient in comparison. This alone has been enough to cause the correlation between the top cryptocurrency in brass and the leading stock market index, the S&P 500.
However, it could be the start of something more. Bitcoin has clearly outperformed the S&P 500 as a benchmark since the start of 2023. Fears that the stock market may be drained of upside in the near to medium term, while crypto shows signs of a convincing comeback may keep this negative correlation up.
The negative correlation between the two assets is typically a result of Bitcoin’s notorious volatility. With no massive price movement to speak of in Bitcoin since this negative correlation emerged, it could be coming soon enough.
