High correlation with stocks might tell us more about the most recent correction
Bitcoin’s 17% correction started at the end of the last year was not a surprise for numerous analysts and professional traders, but at the same time, the reasons behind such a drop were unclear. But according to data from TradingView, we can name the possible fuel for the current correction.
Bitcoin’s correlation with stocks
While the correlation does not seem obvious at first glance, if we compare the movement of Bitcoin and the S&P 500 since Jan. 5, we can see a strong spike in correlation, which is most likely caused by the Fed’s hints regarding the increasing of the interest rate in March.
While increasing the interest rate should not directly affect Bitcoin or any other cryptocurrency out there, it is still a strong risk-off signal that traders momentarily project onto their portfolios.
With the popularity spike in Bitcoin and other digital assets as diversification tools, traditional traders have been purchasing cryptocurrencies actively to increase their risk exposure during the strong risk-on phase on the market.
Risk-off comes on the scene
With the Fed’s announcement, traders have decided to exit all risk-on assets like cryptocurrencies and stocks, which has driven the price of both types of assets down.
According to correlation indicators, Bitcoin is currently moving with an almost 60% correlation on indexes like the NASDAQ and S&P 500. At the same time, digital gold shows a negative correlation with physical gold.
After briefly dropping to $39,650, Bitcoin has recovered by more than 5%, resulting in growth back to $41,800. The short-term rally is currently looking for fuel to continue, but unfortunately for investors, Bitcoin is showing a completely neutral day with no losses or gains whatsoever.