#Bitcoin vs SP500 Correlation
1/ Recently #BTC went from uncorrelated to a +0.64 correlation to the stock market.
Without context this could be worrying. So let's have a look... 👇
2/ At the end of February the stock market takes a dive.
Traders are facing margin calls. They sell their hard assets to raise cash.
Naturally #Bitcoin and the SP500 get more correlated.
3/ Then the #Fed put kicks in. The stock market starts its rally. At the same time people buy #Bitcoin on the cheap.
Simultaneous rally means again higher correlation than usual.
4/ When the rally stalls for both the SP500 and #Bitcoin we actually see a decline in the correlation: back down to almost +0.25.
5/ Then #BTC fails to break $10k, gets stuck in a trading range and sees its volatility decline. With that the correlation moves back up.
But we are only a few whale trades away from getting volatility back in the market.
At that point I'd expect the correlation to break.
6/ TL;DR #Bitcoin is doing fine. If anything it does behave like a safe haven during a liquidity crisis.
Wait for volatility to come back and we should get an uncorrelated asset once again.
7/ For more explanations check out the July 20 edition of the Ecoinometrics newsletter 👇
ecoinometrics.substack.com/p/ecoinometric…
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