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James Carter

March 21, 2023

Bitcoins Correlation to US Stocks Hits 20-Here’s Why

Bitcoin-US equities correlation dropped to its lowest level in over a year and a half. CoinMetrics, a cryptocurrency analytics company, provided a chart showing that the 30-day Pearson correlation between Bitcoin and the S&P 500 has gone below 0.20, its lowest level since September 2021. Bitcoin conversation prompted the chart.

Bitcoins Correlation to US Stocks Hits 20-month Lows

This represents a significant shift from the situation in the middle of 2022, when Bitcoin and stock prices were generally moving in tandem, and the 30-day correlation temporarily topped 0.7.

The price of Bitcoin, which has been skyrocketing, has been moving in the opposite direction of the S&P 500, which has been moving in the opposite direction. As a result, the correlation between the two will probably continue to weaken.

In the event that it drops below 0.08, it will have reached a three-year low.

Why is Bitcoin’s Correlation to Stocks Breaking Down?

Between the years 2021 and 2022, Bitcoin was seen by the majority of people as a speculative technology or asset that should move according to the conditions of its liquidity, similar to the way a technology stock does.

That’s a big part of the factor why cryptocurrencies went up so much in 2020 and 2021 when the US economy (and the world economy) got a lot of help from fiscal and monetary stimulus, and why they went down so fast in 2022 when the stimulus was taken away (mostly by aggressive rate hikes from major central banks).

The price of bitcoin swung mainly in sync with that of the US technology stock sector during the pump and dump that occurred in 2020 and 2021, respectively.

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The beginnings of a financial crisis at the beginning of the year 2023, however, are putting that partnership to the test.

Investors may finally be starting to see Bitcoin as its creators and supporters have always wanted them to see it: as a safe alternative to the fractional reserve banking system that is based on fiat currency and centered on the central bank. Investors may finally be starting to see Bitcoin as a safe alternative instead of a speculative asset like a tech stock.

Bitcoin has made a respectable claim to the title of “digital gold” over the course of the past several weeks.

As investors search for alternative, “harder” currencies/mediums of exchange, the price of bitcoin has surged in parallel with the price of gold, increasing by more than forty percent since it hit a monthly low of fewer than twenty thousand dollars earlier this month.

Because of the ease with which their value can be lost by inflation, fiat currencies (such as the United States dollar, the Euro, and the British pound) are not seen as being as hard as gold and Bitcoin.

Bitcoin, as a result, has been attracting buyers looking for a safe haven at the same time that US stocks have been lagging behind. Investors have been fretting in the face of uncertainty regarding the severity of the current problems in the banking sector and the extent to which this will impact the outlook for economic growth.

Here’s Why BTC’s Falling Correlation to Stocks is Bullish

Bitcoin is not just a new technology that people are betting on, and that will probably become useless soon.

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It is a peer-to-peer payment system that is very strong, incorruptible, and decentralized, and it offers a genuine, fairer, and more transparent alternative to the current financial system.

And it would appear that investors finally recognize it as such, which is a bullish indication for the cryptocurrency.

Bitcoin’s status as a safe haven asset is expected to see more improvements if the current banking crisis gets worse and stock markets respond negatively as a result.

In the meantime, the outlook for a lot more tightening from the US Federal Reserve has probably been dealt a fatal blow, even if the US government is able to stop a crisis from happening.

In other words, it would appear that the end of the trekking cycle is very likely to be within reachable distance at this point.

And if easier financial conditions are on the horizon, which would entail lowering US yields, this might speak well for gold and Bitcoin.