The correlation between Bitcoin (BTC) and the S&P 500 is at a peak of 2 years. This is a bearish sign for the cryptocurrency market.
Market research firm Cryptocurrency, Santiment, pointed out that the recent market drop resulted in a high correlation between Bitcoin and the traditional financial markets in a tweet from March 20.
According to Santiment, Bitcoin’s correlation with traditional stocks shifts from negative to positive values cyclically. The coronavirus pandemic resulted in the growth of this correlation, according to the firm:
“We clearly see very similar movements together with this pandemic, as the coronavirus rightly has investors in almost every sector in a similar state of caution.”
Santiment explained in his tweets that historical Bitcoin data shows that when the correlation with the S&P 500 is high, it is usually accompanied by a major downturn in the cryptocurrency markets. The company also notes:
Any subsequent bounce-backs over time are usually preceded by a growing “disconnect” between BTC and the S&P. We should see a clear sign of an impending upward trend when this correlation line returns to 0 (or below ) is beginning to approach. ”
When Bitcoin first saw its recent downturn earlier this month, Bitcoin bull and Galaxy Digital CEO Mike Novogratz said investors have lost confidence in Bitcoin. He explained:
‘[Bitcoin] was always a trust game. All crypto is. And it seems that global confidence in just about everything has evaporated. ‘
Still, some prominent figures in the cryptocurrency market have regained confidence in Bitcoin, following the asset’s recent upswing. Global Macro Investor’s founder and CEO, Raoul Pal, recently said he’s quite optimistic about Bitcoin after the asset recovered by nearly 80% in just a week.