It looks at the percentage correlation between the S&P 500 (SPY) and bitcoin over time. Plus the correlation for gold.
The graph shows that in this period of time bitcoin generally showed negative correlation to the stock market, whilst gaining correlation with gold, perhaps due to growing fears of economic instability - pre-coronavirus if you can remember then!
However, bitcoin famously plummeted along with the S&P 500 in early March, bringing the cries of correlation to the forefront of the crypto community.
Often forgotten is that something similar happened in the week following bitcoin’s historic high in 2018. As bitcoin tumbled from close to $20,000 the S&P 500 was also dropping, crashing over 10% that week.
During both of these times, the correlation between the two assets ran at all time highs. In these scenarios, was bitcoin moving with the S&P, or was it facing a sell off as a risk asset in times of extreme market volatility?
On the flip side, there have been many times where bitcoin has posted serious gains whilst the stock market has remained flat or dropped. Take May 2019, where bitcoin posted gains of over 60% whilst the S&P 500 dropped more than 6%.
What’s more, despite the unprecedented market instability in 2020, so far BTC is only down 8% from the start of the year, compared to the S&P 500’s 22%.
Looking over an extended period of time the data shows that bitcoin is usually uncorrelated to the S&P 500. But it’s important to note that this can drastically change in periods of extreme price movements in equities markets.
Currently that means bitcoin cannot be seen as a short-term hedge against collapses in the equity markets.
Correlation will be an important metric to follow as the market matures and more institutional money enters the space. Ultimately these new entrants will be the most likely to decide how bitcoin’s price reacts to global events in the future.
The above is not investment advice