Alongside the Dow Jones and the Nasdaq Composite The S&P 500, a key index for many investors, represents America's biggest companies' performance.
Notably, the S&P has been a cornerstone in traditional markets far longer than cryptocurrencies have been around. top cryptocurrencies — namely bitcoin ( BTC ) and Ethereum’s ether ( ETH Traditionally, BTC and ETH traded independently of major indices like the S&P.
This month, however, that lack of correlation changed as Wall Street faced downturns due to pandemic-fueled economic anxiety, pushing bitcoin and ether to unprecedented correlation levels with the S&P.
BTC & ETH Tracking SPY
Both mainstream and crypto markets took a nose dive into a bear market starting March 9th, spurred by an oil price conflict between Russia and Saudi Arabia and the WHO's pandemic declaration.
Since then, market turmoil has been evident, with BTC and ETH becoming increasingly synchronized with the S&P's intraday moves. Let’s delve into the figures.
For a brief refresher, a correlation coefficient between -1 and +1 illustrates the relationship between variables — negative denotes opposite movements, positive denotes similar movements.
According to data According to data from Coin Metrics, on February 20, 2020, BTC-SPY showed a -0.04 correlation while ETH-SPY was at 0.03, indicating minimal relationship in either direction.
These figures increased substantially as markets wavered on March 9th, with BTC-SPY and ETH-SPY reaching correlations of 0.12 and 0.15, respectively.
Correlations surged further by March 15th, achieving new highs of 0.55 for BTC-SPY and 0.59 for ETH-SPY. By March 17th, they peaked again amid market turmoil, reaching 0.59 and 0.61.
We’ve Never Seen It Quite Like This
Tracking correlation between the S&P and leading cryptocurrencies offers insight into how SPY's performance might forecast BTC and ETH trends.
Nonetheless, this recent surge in correlations is remarkable given its historical novelty.
To put it in perspective, before mid-March 2020, previous highs were in December 2018, with BTC-SPY and ETH-SPY at 0.31, and reaching back to 2011 when Bitcoin alone, not ETH, hit 0.34.
Why the Correlation Spike?
Currently, the looming economic downturn is driving investors towards the safety of cash or stablecoins, flooding markets with sell-offs.
Amidst this de-risking wave, few assets, including top stocks and cryptocurrencies, have been immune, causing synchronized sell-offs in BTC, ETH, and the S&P.
The question remains: how long will this elevated correlation endure? Presumably, it'll persist as the global economy navigates its current challenges.
As firms continue large-scale sell-offs of SPY holdings, BTC and ETH may follow suit, albeit temporarily until economic stability returns and the cryptoeconomy regains independence.
2Comments
Nasdaq direction
Is there a website that tracks the real-time correlation between BTC and the S&P 500? I've noticed the trend recently but would like a KPI for real-time monitoring.