The correlation between the S&P 500 and Bitcoin is only increasing, getting closer to the level it was before the cryptocurrency got stronger.
Meanwhile, the S&P 500 just closed the January session outside of the major trend lines watched across the financial world. This is why a possible breakout in the stock market could push BTC higher along with a perfect storm scenario.
Stock Market Closes Monthly Candles Above Major Trend Lines
The S&P 500 index is often considered the best measure of the overall health of the US stock market, and indirectly, the economy. It is used as a benchmark to compare the alpha and beta of other assets and individual stocks.
Positive performance in the SPX is associated with periods of prosperity and profit. If the stock market is doing well, it is a signal for investors to switch to risk strategies.
The S&P 500 could be breaking out of a year-long pattern | SPX on TradingView.com
The S&P 500 has the potential to break out of the upper bound of a long-term trading pattern: a downward widening wedge. Price continues above the pattern in daily time through each month of January that just came to close.
And while the rise again would be a good sign for cryptocurrencies by default, increasing the correlation between BTCUSD and SPX makes the breakout in the stock market more bullish for Bitcoin.
Bitcoin Correlation With The S&P 500 Index Is Rising
The chart above shows the breakout in daily and monthly action on the S&P 500. Bitcoin price is far from closing the January candle with an ROI of more than 40%. Other cryptocurrencies have outperformed significantly during the month.
Both BTCUSD and SPX rise in tandem this month has restored the increasing direction of the correlation between two vastly different investment vehicles.
The correlation with the stock market is only increasing | BTCUSD on TradingView.com
With a correlation coefficient of 0.88, SPX and BTCUSD are in some of the strongest positive correlations historically. Past bear markets in crypto have shifted Bitcoin into negative correlation territory. However, this time was different.
The increasing correlation has been associated with some of Bitcoin’s most explosive bullish moves to the upside – especially after reaching the 0.93 correlation. With increasing correlation and a possible breakout in the SPX, could it be a perfect storm for the top cryptocurrency by market cap?
