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The S&P 500 has now lost five days in a row. Bitcoin and cryptocurrency had a rough week as well.
The S&P 500, an indicator of the 500 largest publicly traded firms, declined for the fifth consecutive day today. After falling 0.8 percent today, it concluded the week 1.7 percent lower than where it began the week.
Cryptocurrency markets are also down this week, dropping from a cumulative market cap of $2.43 trillion on Sunday to $2.2 trillion today, a 9% fall. Much of that happened in a Monday correction, but after stabilizing, markets have slumped again to close out the week. According to figures from CoinGecko, has jettisoned 3% in the last 24 hours, 7%, and —which has seemed impervious to market drops in recent weeks—even shed 9%.
So, that’s a lot of numbers. What exactly does it all mean? Please excuse us for hedging like a Bitcoin hodler, but this is only one small data point indicating that cryptocurrencies may or may not respond to the same stimulus as the S&P 500.
Despite the fact that Bitcoin is marketed as a safe haven against inflation, the S&P 500 and Bitcoin sometimes move in lockstep. After years of either negative or negligibly positive correlation, the two began to behave more similarly in 2020. The correlation coefficient was 0.22, with a range of -1 to 1. That indicates they’re around 22 percent alike. Cousins are not the same as siblings.
BTC, unsurprisingly, was more aligned in 2020 with gold, another safe haven asset. Those two assets, both embraced by a Venn diagram of economic libertarians, correlated 34%. That correlation has since turned negative.
Still, the increasing degree of correlation in 2020 reflected growing institutional interest in Bitcoin, as companies like MicroStrategy and Square bought into the asset and banks and investment firms dipped their toes in the water. BTC was a financial instrument that mainstream investors could deploy, so it started acting similar to other asset classes.
However, this could turn out to be a fluke. According to statistics from crypto analytics firm Skew, the two markets are just 15.5 percent correlated over the last year, and that correlation has been declining since November, when it was closer to 46 percent. Since last October, it has ranged from as high as 62 percent to as low as -37 percent on a monthly basis.
Not to mention the link between relative newcomer Solana and stock trading, or Ethereum and crypto company ETFs.
But you already know what they say about cryptocurrency: it’s volatile. And it will behave in the manner of the stock market whenever it pleases.