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Why Has Bitcoin Become A Leading Indicator For The S&P 500?

Tony Spilotro by Tony Spilotro
2 years ago
in Bitcoin
0
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Yesterday, there was complete and utter carnage across the global financial market. Bitcoin fell over 10% by the daily close and breached below $10,000 at one point before bouncing. The stock market also saw the largest single-day loss since June. 

But why did Bitcoin suddenly lead the stock market almost tick for tick on price charts before the S&P 500 followed? Are these bots turning bearish after crypto began to collapse, or is something else at play? Whatever the dynamics are behind it, the correlation is uncanny.

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Did Bitcoin Kick-Off Yesterday’s Stock Market Blood Bath?

Bitcoin has had a stellar 2020 alongside the rest of the crypto market, stocks, and precious metals. The one negative spot across these markets took place on Black Thursday, but every major market other than the Dow Jones was able to set new yearly highs recently.

Bitcoin broke above $10,000, and the S&P 500 and Nasdaq both set new all-time highs. But after the leading cryptocurrency by market cap faced multiple rejections over $12,000, investors may have decided to take profit and de-risk ahead of the upcoming US election.

RELATED READING | WHY THE UPCOMING US ELECTION IS BITCOIN’S BIGGEST RISK

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Analysts were warning that things could get “weird” and that investors should consider hedging their portfolio with short positions in stocks.  And while that may have prompted the collapse in stocks, it doesn’t explain why Bitcoin led the dump by nearly a full day.

bitcoin btcusd leading indicator stock market crypto sp500 spx

BTCUSD Versus S&P 500 Hourly Chart Comparison | Source: TradingView

Has The Cryptocurrency Become A Leading Indicator For the S&P 500?

Bitcoin spent almost its entire lifecycle having next to no correlation between its price action and the stock market. Big-name investors claimed its uncorrelated price action made it a great addition to any investment portfolio. But since the start of 2020, the crypto market is suddenly trading lock and step with major stock indices and precious metals.

According to the above correlation chart, Bitcoin’s peak was reached a full day ahead of the S&P 500. It also took a full 24 hours later before the drop began in the stock market, versus the crypto market.

RELATED READING | HOW THE GREENBACK TURNED BITCOIN AND CRYPTO INTO A SEA OF RED

Bitcoin tried its best to hold support at the mid-$11,000 range, but failed, falling even deeper. If the S&P 500 continues to follow along with this bizarre correlation where Bitcoin acts as a leading indicator, it could hint at the SPX falling below 3400 today to potentially as low as 3300 before the bell rings on the trading week.

This weekend is a long holiday weekend in the United States, and the stock market will shut down until Tuesday when trading resumes. While the stock market sleeps, the crypto market could get extremely wild.

All eyes should be on Bitcoin as a leading indicator for both the rest of crypto and stocks.

Featured image from Unsplash.
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a digital media executive and global remote work leader with a decade of content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter and feel free to drop me a line if you would like to work together.

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