Bitcoin and the stock market have diametrically opposite histories. Interestingly, the BTC price action or investor behavior is often linked to the spot market. Mainly because people still assume the two are correlated.
What is the truth?
It is true that they are related to some extent. The macro scale does not show this, however. The correlation of BTC with the spot market is in the 0.3-0.5 range and sometimes even drops to 0.
It doesn’t sound like a big deal, but it is significantly higher when compared to the returns on gold and 10-year government bonds.
Bitcoin correlation | The source: Ecoinometry
On the contrary, it’s still much lower because there are other assets that have a higher correlation in the stock market. For example, Microstrategy (MSTR) correlates with Bitcoin at 0.63.
Although MSTR is an older stock in the market, it has lost 23% of its correlation with the S&P 500 index since its Bitcoin Treasury program began.
MSTR correlation | The source: Ecoinometry
This is surely proof that the exchange will stop Bitcoin in any form, no matter where it comes from.
why Yes sir so high correlation?
The correlation between stocks and Bitcoin is increasing after the COVID crash. Previously, these levels were close to zero, but only in stocks have they swung up. Even the yields on gold and 10-year government bonds are in the lower 0.1-0.3 range.
This shows that the correlation depends mainly on the volatility of the BTC market. Oddly enough, when Bitcoin’s volatility is low, and vice versa, the correlation increases.
In fact, the highest correlation can only be formed when both have a common connection. For example, exchange traded products (ETPs) have the highest correlation because they are stocks that are directly backed by cryptocurrencies. For example, the Proshares Bitcoin Strategy ETF (BITO) maintained a Bitcoin correlation of 0.7 at the time of going to press.
BILLIONCorrelation between Bitcoin and BITO | The source: Macro axis
At the time of writing, the correlation between the stock market and BTC is 0.4. Additionally, Bitcoin fell 2.3% while the S&P 500 gained 1.32% and rebounded from yesterday’s 2.2% decline.
Market index share | Source: TradingView
Therefore, if Bitcoin gets stronger, it is likely that more investors holding traditional technology stocks will hold BTC as well. And that could increase the correlation between these asset classes.
What is the Bitcoin price currently?
Bitcoin returned to consolidate higher support on Nov. 30 after the price rose near $ 59,000.
BTC chart 4th Hours | Source: TradingView
Data from TradingView shows BTC reversed to a local low of $ 55,920 this morning.
The pair subsequently rebounded to $ 58,045 at press time and analysts believe in higher time frame strength.
Analyst TechDev noted that Bitcoin’s Stochastic Relative Strength Index (Stoch RSI) was “reset” to its level when BTC hit $ 44,000 – just before the price hit an all-time high.
The source: Twitter
Bitcoin’s strength on Monday coincided with a return to macro markets and news that Twitter CEO Jack Dorsey has left the company to focus entirely on Bitcoin businesses.
While $ 60,000 remains unreachable for the bulls, signs of a shift in sentiment are evident everywhere.
“Bitcoin’s high timeframe structure is bullish. Cycle awareness is important, ”TechDev Say more in another post.
The Crypto Fear & Greed Index fell into the “extreme fear” range in the previous days, but returned to the “neutral” zone on Tuesday with a score of 40/100.
Fear & greed index of Cryptocurrency | Source: alternative.me
At ETH / BTC the picture looks very different.
Since altcoins have seen flat performance in the past 24 hours, the trader Crypto Ed has marked a rising wedge pattern in the 4 hour timeframe for ETH / BTC. The weekly chart also shows similar characteristics.
Still in that ascending wedge and no breakout imo.
The bullish sign is the break of this RSI downtrend overnight.
As I said in previous tweets, it can break out, but until it does, I’m not yet optimistic. pic.twitter.com/Mcty5cTmYy
– Crypto_Ed_NL (@Crypto_Ed_NL) November 30, 2021
“ETH / BTC: Still in this ascending wedge and not yet broken out. The bullish signal breaks the downtrend in the RSI. As I said in previous tweets, it could erupt, but if it doesn’t, I’m not yet optimistic.
A rising wedge structure is often viewed as a potential bear flag as the downward trend breaks.
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