The S&P 500 has lost five days in a row. Bitcoin and cryptocurrencies also had a shaky week.
The S&P 500, an index of the 500 largest publicly traded companies, fell for the fifth day in a row today. It ended the week 1.7% lower than Monday morning after falling 0.8% today.
Crypto Markets Fall 9%
The cryptocurrency markets have also been bearish this week, falling from a cumulative market cap of $ 2.43 trillion on Sunday to $ 2.2 trillion today. This corresponds to a decrease of 9%. Much of the decline was due to a correction on Monday, but after markets stabilized, they plummeted again towards the end of the week. According to CoinGecko, Bitcoin has lost nearly 3% in the past 24 hours, Ethereum 5% and Solana, which appeared to be immune to market declines in recent weeks, 5%.
Okay, so that’s a lot of numbers. What does all this mean? Well, it’s just a small data point that shows that cryptocurrencies may – or may not – respond to the same stimuli as the S&P 500.
The S&P 500 and Bitcoin sometimes move in tandem, although the latter is touted as a safe haven against inflation. After years of negative or only slightly positive correlation, the two began to behave similarly in 2020. The correlation coefficient, which ranges from -1 to 1, reached 0.22. That means, roughly speaking: They are 22% similar. Cousins - but not siblings.
BTC-gold correlation now negative
Unsurprisingly, in 2020 BTC correlated more strongly with gold, another safe haven. Those two assets, both of which are embraced by a Venn chart of economic libertarians, correlated 34%. This correlation has now turned negative.
Still, the increasing degree of correlation in 2020 reflected the growing institutional interest in Bitcoin. Companies like MicroStrategy and Square invested in the asset – and banks and investment firms started looking into cryptocurrency. BTC was a financial instrument that could be used by mainstream investors – so it began to behave similarly to other asset classes.
And that could prove to be a godsend. Last year, the correlation between the two markets was just 15.5%, according to data from cryptanalysis firm Skew. That correlation has been falling since November when it was still 46%. On a monthly basis, the correlation has fluctuated between 62% and -37% since October last year.
Not to mention the correlation between relative newcomer Solana and stock trading, or Ethereum and crypto firm ETFs.
But you know what they say about cryptocurrencies: They are volatile. And they will act like the stock market whenever they want.
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Last updated on September 11, 2021
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