Bitcoin has established a striking correlation to the legacy markets throughout the past several weeks, with this coupling holding strong despite BTC making several attempts to break it throughout the past few days.
This has led one cryptocurrency analyst to note that the S&P 500 could determine Bitcoin’s future, with BTC flashing some tempered signs of weakness that could lead it to see a significant downtrend if the benchmark index is unable to push higher.
This notion is support by data regarding the cryptocurrency’s realized correlation with the S&P 500, which has grown significantly throughout the past few days.
Bitcoin Once Again Establishes Close Correlation to Traditional Markets
Between late-March and early-April Bitcoin showed signs of breaking its close correlation to the U.S. equities market, with the cryptocurrency rallying nearly 100% from its year-to-date lows while equities only posted a tempered recovery.
This decoupling – although bullish at the time – is now showing some signs of reverting, as data from Skew seems to indicate that the crypto is once again growing increasingly correlated with the S&P 500.
Image Courtesy of Skew
The above chart shows that the realized correlation between the two assets is growing after a slight period of decoupling seen throughout March and in the first few days of April.
Traditional markets, much like Bitcoin, are currently caught within a bought of sideways trading as investors weigh the impacts of the COVID-19 pandemic with the immense economic stimulus initiatives that have been undertaken by the Fed and government.
Analyst Claims BTC’s Fate Rests in the Hands of the Stock Market
This growing correlation between Bitcoin and the S&P 500 comes as one popular analyst notes that the crypto’s future may rest primarily on where the index trends next.
He explains that BTC is showing some signs of weakness currently, and a failure for the S&P 500 to continue pushing higher could spark a capitulatory selloff.
“BTC current thoughts: Seems weak as stocks break resistance/new local highs, but BTC fails to break major resistance. If SPX megapump (past 3000), BTC distributors (my opinion) will be left behind or forced to buyback (megamoon 9.2K). If SPX dump (more likely?), BTC dump hard,” he noted.
If this sentiment proves to be valid, it could further damage the “safe haven narrative” that many investors have subscribed to, also potentially further weakening Bitcoin’s macro market structure’s strength.
Featured image from Unsplash.