We are at an interesting moment in the bitcoin market. Cryptocurrency is starting to enter the mainstream, it is possible that even the USA will invest in it in time. However, it is worth trying to check what the bitcoin price is correlated with and maybe draw some conclusions from it.
Stock market correlations – what is it?
To talk about something, it is worth first understanding what exactly we are talking about. So what are stock correlations? These are the relationships between price movements of various assets, such as shares, indices, raw materials, currencies, cryptocurrencies and bonds. Correlation measures how changes in the value of one security are related to movements in another. This is important when analyzing financial markets.
Correlations can be positive, which of course means that the prices of two assets move in the same direction: the value of asset A increases, so the value of asset B also increases. Negative correlation is the opposite phenomenon: the prices of two assets move in opposite directions. To describe it with a specific example: the rising US dollar exchange rate may translate into declines on the gold chart.
Correlations are measured using the Pearson correlation coefficient, which ranges from -1 to +1:
- +1: perfect positive correlation,
- 0: no correlation,
- -1: perfect negative correlation.
What does bitcoin correlate with?
What can the bitcoin price correlate with? Of course with everything. However, we are interested in its connection with the most important assets: gold and shares on the American stock exchange.
In the case of gold, I don’t think I need to explain what I’m talking about. When it comes to US stocks, we are interested in the S&P 500 index (short for Standard & Poor’s 500). This is a stock index that includes shares of the 500 largest companies listed on stock exchanges in the United States (NYSE and NASDAQ). It is therefore considered an indicator of the condition of the US stock market and the US economy in general. The index takes into account shares of companies from various industries: technology (e.g. Apple, Microsoft), financial (e.g. banks) and energy (e.g. ExxonMobil).
The S&P 500 is weighted by market capitalization. This means that companies with higher capitalization, such as Apple or Amazon, have a greater impact on the index value.
Gold vs Bitcoin: Does this correlation always work?
First, let’s start with the correlation between bitcoin and gold. This is particularly important because it will help answer the question whether bitcoin is actually digital gold. On paper, there is a similarity between bullion and cryptocurrency. In both cases we have limited supply and no direct authority from a central authority. However, do these assets correlate in practice?
The latter is different. The correlation between bitcoin and gold is unstable and no permanent trend can be established. For example, a more serious breakdown occurred in 2020-2021, when bitcoin rose during the boom and gold began to lose value. This happened – interestingly – during the COVID-19 pandemic. The metal of kings initially gained, but at some point there was a correction, but the cryptocurrency continued to grow and the bear market began only at the end of 2021, when the Fed started increasing interest rates. At one point during this period of uncertainty, Satoshi Nakamoto’s currency performed better than the metal of kings. This could be due to the fact that there was an increase in liquidity in the markets, which flowed to risky assets.
In turn, in recent months, as markets began to prepare for interest rate cuts, both assets began to behave relatively similarly. However, now the period of bitcoin breaking away from gold and vice versa begins again. In response to Donald Trump’s victory in the US, bitcoin is rising significantly, but gold is undergoing a correction.
Bitcoin and S&P 500: what is the correlation here?
You already know how the BTC rate behaves in relation to the gold price. What is the correlation between the S&P 500 and Bitcoin? There is also a huge fluctuation in this field without a clear trend. A significant convergence of direction is currently visible: after the US elections. Trump’s victory fueled increases on the BTC chart and on the US stock exchange. The share index in line with the BTC rate also increased during the Covid crisis.
What conclusions can you draw from this?
What conclusions can you draw from analyzing the above correlations? The correlation graph between BTC and the US stock exchange is subject to constant fluctuations. Same as the correlation chart with gold.
During the COVID-19 pandemic, bitcoin was highly correlated with the US stock market. The same thing happened during the outbreak of the war in Ukraine and in the first months of this conflict. The correlation of BTC with the gold rate was negative during this period, which may suggest that the markets did not treat BTC as a safe haven and preferred to invest their capital in the precious metal.
The above partially refutes the thesis about BTC as a safe haven. However, it is possible to find a connection between the cryptocurrency rate and the liquidity factor – when it increases, risky assets gain, including: bitcoin.
Does the current economic and political situation in the world allow us to predict what fate awaits BTC investors in 2025? Yes, although much will depend on the policy of the new White House cabinet. If Donald Trump carries out his reforms – promised during the election campaign – and stimulates the US economy, and the Fed continues its policy of cutting rates, you will probably see significant increases on the BTC chart. In the stock market, you should observe the same. Gold may weaken and begin a well-deserved correction.
The above variant is an optimistic scenario. We are currently observing the formation of Donald Trump’s future cabinet. There are many indications that the faction that wants confrontation with China has won in the US, which should be a disturbing signal for investors, especially bitcoin. A potential war between the United States and the Middle Kingdom may save the gold market, but also hit the stock and cryptocurrency markets. From the above analysis, it can be concluded that Bitcoin will be severely hit during a global conflict. This may also coincide with cyclicality – the end of the bull market in the last quarter of 2025.
Analyzing the above data, however, one can also risk the thesis that bitcoin has a life of its own – cyclicality applies and generates the instability of correlation with stocks on the one hand and gold on the other, mentioned in this text.
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