BTC and S&P 500: correlation detected

Bitcoin traded quite subdued last week, staying around $20k with some swings to $18.600 and then back. At the same time, global markets were undergoing a real upheaval, with the dollar hitting new multi-year highs and stocks trying to recover after the sell-off. It is generally accepted that cryptocurrencies are not affected by what happens on the main markets.

However, this time, crypto investors seemed to pay more sensitive attention to what is happening with the shares. In particular, Bitcoin and other dependent cryptocurrencies have shown price weakness in recent days in correlation with the Dow Jones Industrial Average and the S&P 500, which have lost three weeks in a row. In general, this correlation is strong enough, but it would be reckless to fully rely on it. Also note that convergences are drawn for BTC on different timeframes, so they also cannot be discounted.

At the moment, the main reason for the fall in prices in the cryptocurrency market could lie in the mood of investors to seek safe havens for capital. Risky deals seem to be losing their appeal amid pressure from inflationary risks, fears of a global and local recession, as well as the possibility of tightening financial conditions from the world's central banks (especially the Fed). Yet now, the results of such actions could be realized in the growth of the dollar: on Wednesday, DXY reached a new peak in 20 years.

In general, for Bitcoin, the currency and stock markets are areas of gray uncertainty. Of course, the current correlation with the S&P 500 could be seen as a constant watch by investors on what is happening in the US.

Once again, in the short term, focusing on this movement does not seem very prudent, and making forecasts for the long term could be no more than thankless. Any hopes that world analysts try to cheer up investors could easily come to nought when strong geopolitical news comes out.

It is what is happening in the arena of international relations that seems to be the main driver of the markets for both stocks and cryptocurrencies.

Fundamentally, the current economic crisis is not cyclical but structural. Therefore, the way out of it seems to be more military-political than economic. This crisis is unlikely to be contained by raising rates and throwing dollars into the market. It seems that despite the technical picture and even the possibility of a subsequent rebound, the bottom has not yet been passed for Bitcoin at the moment.

In addition, there was negative news in the industry itself: investors feared that the distribution of coins from the bankrupt Mt.Gox exchange could lead to a new market glut.

Author Bio

Daniel Kostecki is an award-winning senior market analyst and a Director of the Polish branch of Conotoxia Ltd. He is a victor of the FxCuffs statuette for “Blog of the Year” and “Personality of the Year”. He has 15 years of experience on the financial markets and a diploma in Economics from the University of Szczecin in Poland. Daniel isprivatelyconnected to the financial markets since 2007 and professionally - since 2010. Author of numerous commentaries and analyses of the situation on the financial markets and a guest on Polish TV, press and radio.