Stock Market Correlation With Bitcoin Remains High, But Why?

Data shows the Bitcoin correlation with the US stock market has remained at a high value recently as it saw an increase during the last week.

Bitcoin Correlation With Stock Market Observed Slight Growth In Past Week

According to the latest weekly report from Arcane Research, BTC’s correlation with NASDAQ and S&P 500 is currently at a high value of more than 0.5.

The “correlation” here is a metric that measures how the changes in the price of another asset affects that of Bitcoin.

Values of the indicator above zero suggest that there is a positive correlation between the crypto and the asset right now. This means that BTC is currently moving in the same direction as the asset.

On the other hand, negative correlation values imply the crypto is responding to changes in the asset’s price by moving in the opposite direction.

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Also, higher above zero/deeper below zero are the values of the metric, the stronger is Bitcoin correlated with the asset.

Now, here is a chart that shows how the Bitcoin correlation with NASDAQ, S&P 500, and Gold have changed since the January of 2021:

Looks like there isn't much correlation between Gold and BTC at the moment | Source: Arcane Research's The Weekly Update - Week 27, 2022

As you can see in the above graph, the Bitcoin correlation with US equities NASDAQ and S&P 500 has been high for months now.

Back in May, the indicator reached a peak value of around 0.8. But shortly after, due to the Terra USD collapse, the crypto market crashed down separately from the equities and thus the correlation declined.

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However, as the CPI report in June hit, correlations once more started rising up as investors pulled out of assets like BTC to manage their risk.

After that followed a period where uncertainty in the crypto market grew due to collapses of multiple lending firms, which lead to the correlations observing a slight drop again.

The report notes that as the crypto-specific uncertainty gets resolved, correlations should resume their uptrend. During the past week, the metric’s value has already observed a slight increase.

The latest CPI report also came out yesterday, revealing that inflation rose 9.1% during the past month. Much like the last report, this one can also push Bitcoin’s correlation with the stock market further up.

BTC Price

At the time of writing, Bitcoin’s price floats around $20.2k, down 3% in the past week. The below chart shows the trend in the price of the coin over the last five days.

The price of the crypto seems to have surged up over the past day | Source: BTCUSD on TradingView

Featured image from Chris Liverani on Unsplash.com, charts from TradingView.com, Arcane Research