Bitcoin over the years 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, price movements in BTC can be particularly substantial.
Top cryptocurrencies are currently showing their biggest daily negative correlation since the FTX-driven market collapse, but what does that say about what’s to come for crypto and stocks?
Bitcoin And Stock Market Correlations Explained
Correlation is when two assets show similarities 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. Readings from -1 to 1 are strong or weak the farther away from 0 the correlation is. A zero correlation means there is no indication of a negative or positive relationship between two assets.
Certain events can occur that cause the correlation to change quickly, such as the collapse of FTX which is exclusive to the cryptocurrency industry. When this happened, Bitcoin and altcoins took a bloodbath, while the stock market rebounded from lows.
Currently, BTCUSD’s correlation with the S&P 500 has once again turned negative on the daily time frame, but it appears that there are no significant surprises for either market to create a sudden disparity.
Currently at a negative correlation between BTC and SPX | BTCUSD on TradingView.com
What A Sudden Negative Correlation With The S&P 500 Could Mean
Over the last few days, the stock market fell down which Bitcoin has remained relatively resistant. This alone is enough to cause a correlation between the top brass cryptocurrency and the main stock market index, the S&P 500.
However, it could be the start of something else. Bitcoin has outperformed the S&P 500 as a benchmark since the beginning of 2023. Fears that the stock market may be marked upward in the medium term, while crypto shows signs of an attractive return may keep this negative correlation rising.
The negative correlation between the two assets is mostly a result of Bitcoin’s notorious volatility. Without a massive price movement to speak of in Bitcoin since this negative correlation appeared, it could come quite soon.