Ever since the traditional markets took a nosedive due to the global economic effect of the Coronavirus, Bitcoin traders have noticed an uncanny correlation between BTC and S&P 500.
Historical Correlation between Bitcoin and S&P 500
Recently, Bitcoin hit a new all-time high correlation with the S&P 500, a stock market index that tracks the performance of large US companies. Based on the below chart from Coin Metrics, the 90-day Pearson correlation coefficient for Bitcoin and the S&P 500 hit an all-time high of roughly 0.5 since March.
Note:
- 1 -> BTC and S&P move identically
- 0 -> BTC and S&P move completely independent from each other
- -1 -> BTC and S&P move in opposite directions
1. After Bitcoin bottomed out at $3480 in December 2018, its correlation to the S&P dwindled from 0.4 to -0.3 in the next two months, as Bitcoin into its 2019 rally.
2. After Bitcoin hit the bottom of $6,600 in December 2019, its correlation to the S&P started trending negative to -0.4 as BTC was commencing its 2020 pump.
What will happen in the Bitcoin market?
Indicated by the above data history of correlation between Bitcoin and S&P 500, Justin Kwok, the Analyst Director from Bexplus, predicts that Bitcoin’s next decoupling from the S&P 500 index may be a preliminary sign of market recovery and bullishness. There might be a retracement in the near term. The 14-day relative strength index (RSI) is reporting neutral conditions. As a result, Bitcoin may continue the slight consolidation before a potential rally.
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Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.
