The Only Correlation Between Bitcoin and the Stock Market is Panic Selling

The Only Correlation Between Bitcoin and the Stock Market is Panic Selling

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Bitcoin recently experienced a significant drop in value when over the course of this last week. Its value dropped from a stable $9,000 to $5,000 in a matter of days. At the same time, on the stock market, many companies and indexes also lost value. Most notably, the S&P 500 index, whose loses flipped a stock market circuit breaker, pausing all trading of the asset for 15 minutes.

Following the events, many people started producing stories about how BTC is connected to the stock market’s price movements and it’s not this noncorrelated asset that should behave like gold. Well, Bitcoin is neither following the stock market, nor it is gold. What it is, is simple. It’s Bitcoin.

The level of utility that Bitcoin has is as limited as money, but the way one owns Bitcoin is similar to stocks and gold. It’s completely different than any one of these types of “currency”.

The coronavirus COVID-19 scare is negatively influencing the global economy. People are buying everything out of supermarkets, they are fearful for themselves and their loved ones and they are focused on containing the virus spread. Individuals and governments all around the world are doing the right thing.

Naturally, it is going to take away focus from trading, it’s going to induce panic selling and paranoia. But I don’t want to just assume things about the world. I want to analyze the data that I have available and see what really happened. Just like any rational being interested in the markets, I looked up charts for BTC/USD and S&P 500 to look for any correlation between the most impactful cryptocurrency and the most impactful index.

So let’s have a look!

Charts from TradeView. Data from CoinMarketCap, YCharts, Yahoo Finance, and respective exchange/index

Looking at the charts, anybody would see a correlation. The charts seem to imitate one another, but in fact, Bitcoin is the one reacting to the S&P 500 selloff. However, it’s important to remember that these are assets that are in the hands of the same people most of the time. In addition, panic is contagious. Even more contagious than the COVID-19, because you only need an internet connection to infect others with fear. With many people sitting at home avoiding exposure to the virus, they find themselves with a lot of free time on their hands. That free time gets the small hands involved, so it’s no wonder that we are seeing the same patterns repeat themselves across different assets.

The big hands are the ones making all of the waves. Investment groups that entered the market post-2008 are now leaving with as much cash as possible because they are expecting the worst. I think that the Bitcoin sell-off is just a natural and very human reaction to the panic we are experiencing globally. Bitcoin losses seem marginal compared to the stock market, which faces significantly larger losses.

Compared to the S&P 500, Bitcoin is a small creature, so it will be able to recover much faster from the damage, assuming we all survive this COVID ordeal. The 18th of May is right around the corner, so this may be a great time to buy Bitcoin at a discount right before the halvening.

Disclaimer: I’m not advocating buying or investing in Bitcoin. What you do with your money is your decision, so don’t take this as financial advice. Investing means risking your capital and can potentially lead to significant losses. Remember that.