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Correlation between Bitcoin and stocks returns and brings risks in the short term
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Since Donald Trump’s election to the US presidency on November 5, Bitcoin (BTC) has risen around 47%, clearly outperforming the 4% advance of the S&P 500. However, this discrepancy brings back a negative correlation between BTC and the stock index that could bring new (and strong) corrections in the short term.
The movement occurred because the S&P 500 suffered because of the interest rate cut in the United States in December. Falling interest rates tend to benefit shares, but in this case the cut served to bring pessimism to the market.
On the other hand, Donald Trump’s victory in the elections served as an impetus for BTC to renew new highs. But this Tuesday (07), the cryptocurrency turned around and records a drop of 4.6%worth US$97,746. And this relationship between BTC and stocks can bring even greater losses.
Andre Dragosch, head of research at Bitwise in Europe, spoke about other factors affecting the divergence between Bitcoin and stocks. One of these factors is precisely the expectations with US interest rateswhich should fall less intensely than the market expected
Interest impacts relationship
This means that interest rates, although falling, should continue at high levels over a longer period of time. Higher interest rates make fixed income investments more attractive, harming assets like Bitcoin.
In general, BTC and the S&P 500 have a divergent correlation: When one increases in value, the other loses value. However, the two started moving together again, its correlation reaching 0.88 (with 0 being no correlation and 1 starting absolute correlation) on the most recent 20-day moving average.
Although the correlation between BTC and S&P 500 shows danger, BTC are becoming scarcer on the market. According to Glassnode, the balance of BTC on platforms reached the lowest level since 2022, indicating that demand for the cryptocurrency remains high.
At the same time, the DXY indexwhich measures the value of the US dollar relative to a basket of major currencies, rose 5%, further putting pressure on risky assets. This could indicate a loss to Bitcoin, whose price could fall more than the losses recorded this Tuesday.
But Dragosch explains that it has held up relatively well thanks to other factors, including the continued decline in BTC supply on exchanges. “Bitcoin balances on exchanges continued to fall despite profit taking,” he said.
Correlation between Bitcoin and stocks returns and brings risks in the short term
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Correlation between Bitcoin and stocks returns and brings risks in the short term
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Correlation between Bitcoin and stocks returns and brings risks in the short term
