Bitcoin Correlation With The S&P 500 Falls To FTX Collapse Levels, But Why?
Over the years, Bitcoin has shown an increasingly strong positive correlation with the S&P 500 and other major US stock market indices. When the correlation weakens and turns negative, price movements in BTC can be especially substantial.
The top cryptocurrency is now showing the biggest daily negative correlation since the FTX-driven market meltdown, but what does that say about what’s to come in cryptocurrencies and equities?
Bitcoin and Stock Market Correlations Explained
Correlation is when two assets share a similarity in price action. Pearson’s correlation coefficient measures the linear correlation of two data inputs, in this case BTCUSD and 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 that there is no indication of a negative or positive relationship between two assets.
Certain events can occur and cause the correlations to change abruptly, such as the FTX collapse, which was unique to the cryptocurrency industry. When that happened, Bitcoin and altcoins were in a bloodbath while the stock market rallied from a low.
Now, BTCUSD’s correlation with the S&P 500 has once again turned negative on the daily timeframe, but there appears to be no significant shock to either market to create such a sudden disparity.
Currently at a negative correlation between BTC and SPX | BTCUSD on TradingView.com
What the sudden negative correlation with the S&P 500 could mean
Over the past few days, the stock market has tanked, which Bitcoin has remained quite resilient in comparison. That alone was enough to cause the correlation between the leading cryptocurrency and the main stock market index, the S&P 500.
However, it could be the start of something more. Bitcoin has largely outperformed the S&P 500 as a benchmark since early 2023. Fears that the stock market could be taken advantage of in the short to medium term while the cryptocurrency shows signs of a compelling return could keep this negative correlation rising.
The negative correlation between the two assets is typically the result of Bitcoin’s notorious volatility. With no massive price movement to speak of in Bitcoin since this negative correlation appeared, it could happen soon.