Bitcoin’s Correlation to US Stocks is Fading – Why That Could Be a Good Thing for the BTC Price

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Positive correlation with Bitcoin price US stock priceshit a record high in 2022, but is declining. Bitcoin bulls hope this decoupling bodes well for Bitcoin given that the ongoing struggle in the US stock market may no longer be a headwind for the world’s largest cryptocurrency. I’m in

According to the chart presented by coin metricsthe 60-day Pearson correlation between BTC price and the closing price of the S&P 500, the most widely tracked US equity market benchmark, fell to 0.30 earlier this week, the lowest level since April 2022.

After a sharp rise earlier in the year as cryptocurrency and stock prices plunged in unison amid concerns over a better-than-expected rebound in U.S. inflationary pressures and the resulting response to tightening, the correlation is expected to rise sharply in 2022. It reached an all-time high of 0.667 in September.from US Federal Reserve System.

The drop in correlation between the two asset classes follows crypto’s impressive year-to-date rally. Bitcoin gained about 35% last year, while the S&P 500 gained a much more modest 4.0%.

Does low correlation with stock prices mean the bear market is over?

Bitcoin’s increased correlation with the US stock market in the second half of 2022 has sparked continued bearishness, with BTC falling 77% from its 2021 record high of $69,000 by the November low. It was a defining feature of the market.

Prior to that, the 60-day Pearson correlation between Bitcoin and the S&P 500 rarely reached 0.3 and frequently fell below zero. The years leading up to 2022, when Bitcoin’s correlation with US equities was much weaker, were marked by significant price gains.

Bitcoin has surged more than 2,000% from its 2018 low of just over $3,000 to its 2021 record high. Bulls hope the low correlation between Bitcoin and equities, as seen in the late 2018 to late 2021 period, will be a hallmark of the upcoming bull market.

Equity investors expect the U.S. economy to outperform expectations and the Fed’s aggressive efforts to curb inflation in the U.S., which is currently performing stronger than expected, could exacerbate a slump in corporate earnings later this year. , and have already taken a hit from higher risk-free rates (i.e. higher US Treasury yields).

As such, few bet on a short-term surge in U.S. equities returning to record highs. However, despite continued pessimism about the outlook for U.S. stocks, a weaker correlation could lead to Bitcoin gains this year. However, with the BTC price pullback from its recent high above $25,000, several on-chain indicators related to Bitcoin market profitability are giving a less bullish signal to the outlook for the world’s largest cryptocurrency by market capitalization. No. Some are concerned that Bitcoin could fall below $20,000 in the near future.