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Is There a Correlation Between Bitcoin and U.S. Stock Market Prices?

Why it matters to you:
Active investors in Bitcoin and cryptocurrencies are always going to look for correlations between the movements of investment assets. The reality is that investments always influence one another. In this article, we explore whether there is a correlation between the price of Bitcoin and the overall value of shares on U.S. stock markets. This information could influence whether you buy, hold, or sell Bitcoin on any particular day, depending on how the stock market is doing.
What is the market value of cryptocurrencies?Is there a correlation between the Nasdaq/S&P 500 and crypto prices?What does this correlation mean for cryptocurrencies?

Bitcoin—and everything cryptocurrency that has been created since—was born and forged out of a distrust for financial institutions and the banking system. 

In 2008, when Occupy Wall Street and similar grassroots organizations were demanding financial CEOs be prosecuted for the global financial crisis and recession, a whole new financial cryptocurrency future industry was created.

Thirteen years have passed since then. The technological innovation and opportunities of the cryptocurrency industry are undeniable. But what's up with prices? Is there any correlation between stock market prices and Bitcoin? Does this correlation exist, and if so, what does this mean?

What is the market value of cryptocurrencies? 

Thirteen years later, over 200 million people use and invest in Bitcoin and other cryptocurrencies every single day. Global financial institutions—from the smallest credit unions to the largest banks—now invest in Bitcoin and other cryptocurrencies. 

Cryptocurrencies are recognized as a legitimate investment asset class. Investors trust them, promote them to clients, and include them in numerous portfolios. Ironically, the very institutions that Nakamoto and anarchist libertarians wanted to overthrow are making huge profits from cryptocurrencies. 

$33bn

was invested into crypto/blockchain startups in 2021 by venture capitalists

At the time of writing, Bitcoin is worth over $42,000 and has a market cap of over $790bn, according to CoinMarketCap. According to Yahoo Finance, the overall market cap of the 4,000+ cryptocurrencies in existence has reached of $1.9 trillion. Ultimately, venture capitalists invested more than $33bn into crypto/blockchain startups in 2021, more than all prior years combined, according to Galaxy Digital Research.

With so many financial institutions taking an active interest in Bitcoin and cryptocurrencies, it’s worth asking: have they become simply another investment vehicle? Another financial asset to be traded? 

At the same time, we need to establish whether there is a correlation between U.S. stock markets (e.g. the Nasdaq/S&P 500) and crypto prices. 

Is there a correlation between the Nasdaq/S&P 500 and crypto prices? 

According to one of the world’s most trusted financial news outlets, Bloomberg, there is a direct correlation between stock market prices and crypto prices. 

Bloomberg confirms that: “The 100-day correlation coefficient of Bitcoin and the S&P 500 stands at 0.33, among the highest readings of the year. That means that when stocks move up, Bitcoin is likely to do the same, and vice versa. (A coefficient of 1 means the assets are moving in lockstep, while minus-1 would show they’re moving in opposite directions.)”

Decrypt also confirms that: "The correlation between Bitcoin and two major equity indices, the S&P 500 and Nasdaq, surged to an 18-month high".

Matt Maley, chief market strategist for the investment firm, Miller Tabak + Co said: “The big-cap tech names have become synonymous with the risk-on/risk-off trade. When the big-cap tech names move in a significant way, other risk assets move in tandem.”

Ultimately, Kaiko, cryptocurrency data provider, noted that: "The Federal Reserve’s December meeting had a strong impact on global financial markets, with traders reacting swiftly to the prospect of monetary tightening. During the volatility, Bitcoin behaved strongly like a risk asset and its correlation with the Nasdaq and S&P 500 equity indices jumped to its highest level in more than a year, at .61 and .58 respectively. On the other hand, Bitcoin’s correlation with safe haven gold has remained negative since September."

What this means is that there’s a larger and more noticeable correlation between tech stocks (think Facebook, Google, Salesforce, etc.) and crypto prices. When one goes up, chances are the other will move in the same direction (and vice versa). 

A correlation

is clear.

Wall Street investors are starting to use Bitcoin and cryptocurrencies as a hedge investment against upward movements in the prices of food, housing, and other commodities. According to Economists with Bloomberg Economics, “roughly half of Bitcoin’s recent returns can be explained by inflation fears, with the other half coming from market exuberance and momentum trading.” 

A correlation is clear. Not only are Bitcoin and other cryptocurrencies an investment vehicle and a trusted asset, but they are also serving as a hedge against inflation. 

What does this correlation mean for cryptocurrencies? 

Over time, Bitcoin is becoming more of a safe haven asset. Which is good news for crypto enthusiasts, investors, and those committed to the long-term growth of the sector. 

This correlation between crypto prices and stock markets strengthens the legitimacy of Bitcoin and other cryptocurrencies as an investment vehicle. Making it more popular with Wall Street, hedge funds, institutional investors, and millions of consumer investors. 

Overall, this correlation is good for Bitcoin and cryptocurrencies. Naturally, some would prefer it forges its own path, keeping itself separate from other investment asset classes. However, the nature of the financial sector and investor demands makes Bitcoin an attractive investment opportunity. 

Given the state of the global economy and continued Covid-related uncertainties, we can expect this continued interest from Wall Street to continue, and potentially increase over time.

Published: Jan 19, 2022
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