The movement of Bitcoin and the S&P 500 since January 5 indicates a significant increase in correlation.
Many observers and professional traders were not surprised by Bitcoin’s 17 percent correction that began at the close of last year, but the causes of such a decline were unclear.
However, according to on TradingView data, we can identify the potential fuel for the present downturn.
The Relationship between Bitcoin and Stocks
While the correlation may not appear obvious at first glance, comparing the movements of Bitcoin and the S&P 500 since Jan. 5 reveals a significant increase in correlation, which is most likely due to the Fed’s hints about an interest rate hike in March.
While an increase in the interest rate is unlikely to have a direct impact on Bitcoin or any other cryptocurrency, it is still a powerful risk-off signal that traders are projecting onto their portfolios at the present.
Traditional traders have been actively purchasing cryptocurrencies to expand their risk exposure during the strong risk-on phase on the market, thanks to the rise in popularity of Bitcoin and other digital assets as diversification instruments.
The term “risk-off” appears on the scene
As a result of the Fed’s statement, traders have opted to sell all risky assets, such as cryptocurrencies and equities, driving their prices down.
According to correlation indicators, BTC is currently moving with a nearly 60% correlation on indices like the NASDAQ and S&P 500.
Digital gold, on the other hand, has a negative association with physical gold.
Following a brief drop to $39,650, BTC has recovered by more than 5%, bringing it back to $41,800.
The short-term rally is currently looking for fuel, but investors will be disappointed to learn that BTC has had a completely neutral day, with no losses or gains.