Bitcoin over the years has shown an increasingly strong positive correlation with the S&P 500 and other major US stock market indexes. When the correlation weakens and turns negative, price movements in BTC can be especially substantial.
The top cryptocurrency is now showing the largest daily negative correlation since the FTX-driven market collapse, but what might this say about what’s to come in crypto and stocks?
Bitcoin And Stock Market Correlations Explained
Correlation is a 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. Readings range from -1 to 1 becoming stronger or weaker the further away from 0 the correlation moves. Zero correlation means 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 which was cryptocurrency industry exclusive. When this happened, Bitcoin and altcoins took a bloodbath, while the stock market rebounded from a low.
Now, BTCUSD’s correlation with the S&P 500 once again has turned negative on the daily timeframe, but there appears to be no significant shock to either market to create such a sudden disparity.
What The Sudden Negative Correlation With S&P 500 Could Mean
Over the last several days, the stock market sank lower which Bitcoin has remained rather resilient by comparison. This alone has been enough to cause the correlation between the top brass cryptocurrency and the leading stock market index, the S&P 500.
However, it could be the start of something more. Bitcoin has vastly outperformed the S&P 500 as a benchmark since the start of 2023. Fears that the stock market could be tapped for upside in the near to medium term, while crypto shows signs of a compelling comeback could keep this negative correlation climbing.
The negative correlation between the two assets is typically the result of Bitcoin’s notorious volatility. Without a massive price movement to speak of in Bitcoin since this negative correlation appeared, it could be coming soon enough.