Title: Bitcoin Gains Momentum as Correlation with S&P 500 Increases
Over the past decade, Bitcoin has shown a correlation of 0.17 with the S&P 500, lower than other alternative assets like the S&P Goldman Sachs Commodity Index. However, recent years have seen a slight increase in Bitcoin’s correlation with the stock market, reaching 0.41 over the last five years.
This shift in correlation from negative to positive on November 11, 2023, and January 2024, indicates a changing perception of Bitcoin among investors. While the S&P 500 offers stable performance with annual returns of about 9-10%, Bitcoin’s volatility has been likened to a roller-coaster ride, making it challenging for traders to navigate.
The correlation between Bitcoin and traditional equity markets like the S&P 500 can be attributed to factors such as declining inflation numbers and the U.S. Federal Reserve’s decision to pause interest rate hikes. This has created a favorable environment for risk-on trading, leading to bull rallies for both Bitcoin and the S&P 500 index.
Despite Bitcoin’s extreme volatility, Fidelity’s research indicates that it has historically provided significant returns, averaging 186.7% annually. However, since the launch of the Bitcoin futures market in 2018, its average annual returns have been around 8.8%.
The recent surge in Bitcoin’s price aligns with optimism in technology stocks on Wall Street, suggesting that movements in technology stocks influence Bitcoin’s market. Traders are monitoring the NDX-SPX ratio for insights into Bitcoin’s performance.
Optimism prevails in the crypto market due to factors like the upcoming halving-induced supply reduction and increased ETF demand, fueling predictions of Bitcoin reaching $150,000 and beyond. Ali Martinez speculates that Bitcoin’s price trajectory might parallel that of the S&P 500, raising the question of whether the recent dip from $32,000 to $25,000 was the final opportunity to buy at a low price.
As Bitcoin gains momentum and its correlation with the S&P 500 increases, investors are closely watching for further developments in the cryptocurrency market.
