On Wednesday, Bitcoin was pushing $9,500. The cryptocurrency had finally begun to rally after sustaining a dip to $8,900 on the weekend.
Many said that BTC was poised to rally even higher. One trader, for instance, shared charts indicating that Bitcoin was on track to hit $10,500, then $11,500 as bullish momentum ramped up.
But the S&P 500 has had other plans for this nascent market.
On Thursday, the leading U.S. stock market index plunged at the open. As of the time of this article’s writing, the S&P 500 is down by 0.7%.
Bitcoin followed suit, falling in step with the market as can be seen in the chart below.
Bitcoin price chart with S&P 500 futures (ES1) overlay from TradingView.com
It’s not just on the smaller time frames that Bitcoin trades with the S&P 500.
Digital asset investor and fund manager Charles Edwards shared the chart below late last month. It shows that whenever there have been high “levels of fear and uncertainty” in the market, the S&P 500 and Bitcoin have been linked at the hip.
Bitcoin & stock correlation in 2020.
We have (sadly) “re-coupled” as of 10 June. Correlations at all time highs.
Notice the trend?
High levels of fear and uncertainty (eg. VIX) = high levels of correlation. pic.twitter.com/rKPjXpdz73
— Charles Edwards (@caprioleio) June 21, 2020
Why Bitcoin Trades In Tandem with the S&P 500
The cause of the sudden tick-for-tick correlation has been puzzling to many traders. Before this, Bitcoin may have had a macro correlation to other markets, but not at the level we’re seeing today.
A trader says that the correlation is somewhat explainable. Responding to Bitazu Capital’s Mohit Sorout, who was commenting on the absurdity of the correlation, the trader said:
“It comes from an overall thin market. Derivatives are doing record low volumes and generally haven’t recovered any of their open interest as a whole. COINBASE daily volume is ~$80m on most days and BITMEX is getting dragged around by it (which drags around the other derivs).”
It Can Be a Good Thing
Some see the correlation as a bad thing, but another correlation analysis by pseudonymous trader “PlanB” begs to differ.
As reported by
