Title: Bitcoin’s Correlation with S&P 500 Gains Momentum, Reflecting Changing Investor Perception
Over the past decade, Bitcoin has shown a correlation of 0.17 with the S&P 500, lower than other alternative assets like the S&P Goldman Sachs Commodity Index. However, recent years have seen a slight increase in this correlation, with the last five years showing a rise to 0.41.
This shift in correlation from negative to positive, as seen on November 11, 2023, and January 2024, indicates a changing perception of Bitcoin among investors. While the S&P 500 is favored for its stable performance and diversification, Bitcoin’s volatility has been likened to a roller-coaster ride, making it challenging for traders to navigate.
The correlation between Bitcoin and the S&P 500 can be attributed to factors such as declining inflation numbers and the U.S. Federal Reserve’s monetary policy decisions. Both assets thrive in periods of loose monetary policy, driving investors towards stocks and digital coins for potential profits.
Despite Bitcoin’s extreme volatility, Fidelity’s research indicates significant historical returns, although the launch of Bitcoin futures in 2018 has tempered these returns. Adding Bitcoin to a traditional portfolio can significantly increase volatility, with risks escalating as allocation levels rise.
Bitcoin’s recent price surge aligns with optimism in technology stocks, suggesting a positive correlation between technology stocks and Bitcoin’s market movements. Optimism prevails in the crypto market due to factors like upcoming supply reductions and increased ETF demand, fueling predictions of Bitcoin reaching $150,000 and beyond.
As Bitcoin’s price trajectory mirrors that of the S&P 500, investors speculate on whether the recent decline represents a buying opportunity or the beginning of an upward trend. The question remains: is it “up only” from here for Bitcoin?
