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Bitcoin’s high correlation with S&P 500 suggests another incoming price dip

Posted: 3 June 2022 3:47 pm
News
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A slide back to AUD$38.5K (US$28K) may be in play as Bitcoin's correlation with the S&P 500 index continues to remain extremely high.

  • Experts believe that a major economic recession is looming large on the horizon.
  • Ex-CEO of crypto trading platform BitMEX Arthur Hayes believes that the recent Terra Luna debacle helped Bitcoin find its price bottom.
  • The launch of El Salvador's highly anticipated billion-dollar Bitcoin bond has been delayed yet again.

After having traded around AUD$41,500 for the last 24 hours, Bitcoin has been able to garner some positive price momentum, gaining approx. 3%. As a result, the asset has wiped out its 14-day losses and is now trading at AUD$42,050.

Bitcoin experienced a 10% price rally between 29 and 30 May, profits from which have since evaporated. The cryptocurrency has been following closely in the footsteps of the S&P 500, an index composed of the 500 leading US publicly traded companies. With BTC's correlation with the S&P 500 continuing to remain high, there is a possibility that a retest of AUD$38,500 (US$28,000) could happen.

BTC vs S&P 500 correlation chart (source: Cointelegraph)
BTC vs S&P 500 correlation chart (source: Cointelegraph)

As seen above, the correlation range lies between -1 to +1, with the former meaning that BTC is decoupling from the market while the latter signifies a positive correlation. The lack of an apparent relationship between the 2 assets is represented by 0. Bitcoin's correlation with the S&P 500 currently stands at a high 0.88.

With the macroeconomic landscape continuing to worsen, it appears as though the stock and crypto markets could be affected quite badly over the coming few days. As per Jeremy Grantham, co-founder and chief investment strategist of GMO, the economy is heading quickly towards a "recession" of sorts, with profits across different markets already on the decline.

How to buy Bitcoin

Silver lining appears

Despite the ongoing volatility, analysts for Glassnode noted that Bitcoin is currently flashing a classic 'buy indicator' for the first time in over 25 months. Referred to as 'Investor Tool', the metric serves as a simple yet effective medium for investors to accrue "outsized" returns. This positive price indication has been welcomed by the market, especially after the recent Terra Luna debacle that sent Bitcoin's valuation to a 10-month low.

According to Arthur Hayes, ex-CEO of cryptocurrency exchange BitMEX, the recent Terra dip to AUD$32,800 (US$23,800) may in fact mark a real price floor for BTC, adding:

"The LFG (Luna Foundation Guard) is such a seller. To puke 80,000 physical Bitcoin is quite a feat. After contemplating the nature in which these Bitcoins were sold, I am even more confident that the US$25,000—$27,000 zone for Bitcoin is this cycle's bottom."

El Salvador's Bitcoin bond still 'on hold'

Alejandro Zelaya, finance minister for El Salvador, noted that the central American nation will be further delaying the launch of its highly anticipated billion-dollar Bitcoin bond, citing economic uncertainty — emanating from the Russia-Ukraine conflict — as a reason for the same.

The delay also coincides with news of El Salvadoran authorities flagrantly violating "human rights and criminalising people living in poverty" within its borders.

Disclosure: The author owns a range of cryptocurrencies at the time of writing

Trying to get a handle on the markets? Cut through the noise with our overview of the best cryptos to buy right now, explore some strategies for how to trade crypto or see if there's a better platform for you with our guide to the best crypto exchanges.

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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