Even though the stock market is still within striking distance of former all-time highs established in 2021, Bitcoin and other cryptocurrencies feel like they are located thousands of miles away in comparison.
DOES CRYPTO'S RELATIONSHIP WITH THE S&P 500 END?
Throughout 2020, there was a noticeable association between the stock market and cryptocurrency prices. As it was known at the time, the "froth" from the stock market bubble was flowing into Bitcoin and other alternative cryptocurrencies.
During most of the course of the bear market, the relationship remained unchanged. Because of the FTX fall in November, the stock market could put a bottom before cryptocurrency. Since then, the stock market has staged a remarkable recovery, but on the whole, the once highly volatile cryptocurrency market has become more subdued.
According to the association Coefficient between the S&P 500 and BTCUSD, the two asset classes previously displayed a significant association. However, this correlation is at risk of breaking down in the future months if price movement does not come more into parity.
The direction of the association between any two assets is currently headed downward, as measured by the Correlation Coefficient, which does not merely reflect the intensity of the relationship between any two assets. This indicates that the connection will continue to diminish over time unless there is a change in the direction of the association.
BITCOIN AND NVIDIA END 8-YEAR PARTNERSHIP
The fact that the same instrument and strong connection between Bitcoin and Nvidia have since begun to collapse is a potential early indication that the uptrend in the connection Coefficient between the S&P 500 and BTCUSD would break down. This possibility arises as a result of the fact that the same tool and correlation exists between Bitcoin and Nvidia.
The preceding pattern of higher and higher lows has now seen its first lower low after a string of higher and higher lows. Should the next peak on the correlation coefficient be lower than the previous one, this might signify the end of any correlation between cryptocurrency and traditional markets.
Despite this, there is some silver lining since portfolio managers frequently look to diversify their holdings by purchasing assets negatively connected with stock prices. The asset may become interesting for various reasons if the correlation coefficient moves in that direction. In the past, Bitcoin was considered a separate asset class with a weak to nonexistent relationship with the stock market.
The COVID price shock caused many previously uncorrelated assets to suddenly become strongly correlated, and this relationship may be weakening. On the other hand, Bitcoin is exhibiting an increasingly robust link with Gold, which is likely positive for the cryptocurrency with the largest market capitalization.
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