3 July 2020

The positive correlation between Bitcoin and the stock market, especially the S&P500, has been a topic of discussion for quite some time. The global market has plunged in the past few months due to the COVID-19 pandemic. Traders and investors began to liquidate their assets from equities and move capital into safer investments. As a result, the equity market went into a freefall.

Initially, it seemed like cryptocurrency would not suffer the same fate as the traditional market. But the Bitcoin prices took a surprisingly different turn altogether.  Bitcoin, which was considered as a safe-haven like Gold and Silver, failed to be true. Instead, it follows the trajectory of the equity market, precisely, the movement of the S&P500 and the DOW.

There were two instances when the Bitcoin prices reacted based on the move in the stock market. The first signs of correlation were on February 12, 2020, when both S&P500 and the Bitcoin market saw a dip. On March 8, 2020, the S&P500 crashed, and so did the Bitcoin prices, where it fell from the $9,000 mark to levels $4,000.

 

Having said this, lately, from Mid-May, the correlation coefficient has declined.

What does the Recent Trend Mean? – Correlation between Bitcoin and the FANG Index

Firstly, FANG is an acronym for highly traded tech companies, including Facebook, Amazon, Apple, Netflix, and Alphabet (formerly known as Google). An index with these companies put together is known as the FANG index.

As the correlation between Bitcoin and S&P500 was gradually fading out, Bitcoin had other plans. In the previous week of June (15th – 19th), the Bitcoin prices were in high correlation with the FANG index.

Below is a chart of Bitcoin, represented by the thick blue line. On it are the line charts of Facebook, Amazon, Apple, Netflix, and Alphabet. The red vertical line is the beginning of the third week of June.

It can clearly be ascertained that, as the FANG stocks began to rally when the US markets opened, the Bitcoin prices rallied as well. From 16th to 19th, all the stock went sideways, and so did the Bitcoin prices. The US markets were closed on 20th and 21st, while the Bitcoin was open, and the prices continued the sideways movement. On June 22, the FANG stocks broke above from the consolidation and rallied yet again. And surprisingly, the Bitcoin market made the same move.

Other Correlations

Bitcoin and Ethereum have always had a close correlation in prices with a record-high correlation coefficient of 0.93. Ripple, too is a highly correlated coin with Bitcoin and so many other cryptocurrencies. Having that said, coins like Link and XTZ bucked this trend, where they hardly showed any correlation with the cryptocurrency giant. The reason for it could be due to the ongoing project developments in the community.

The Mysterious Transaction on the Ethereum Network

In the second week of June, two Ethereum transactions of significantly high fees caught the eye in the Crypto community. The first transaction was mined by Sparkpool on June 10. As per reports, 355 ETH was sent, costing $2.5 million. And the second transaction was mined by Ethermine on June 11, which was for an amount of 350 ETH. The fee for it was again around $2.5 million.

Ethermine assured that they would freeze the fee, in consideration that the two transactions occurred accidentally. They asked the sender to reach out to them. Despite waiting for four days, the sender did not respond to their request. Thus, Ethermine decided to disburse the fee to the miners in the pool.

Technical Viewpoint

Below are the price charts of the Bitcoin and Ethereum. From the beginning of June, the prices began a southern trend. The purple line represents the Support & Resistance. On June 15, the prices touched the S&R level, reacted, and fell. This move was, in fact, correlated with the FANG stocks. Moving forward, the market went until the demand zone and shot right back up.

Then, towards the end of the week, it moved sideways. But, as the US markets opened and FANG stocks rallied, Bitcoin and Ethereum successfully broke above the S&R. Thus, Bitcoin and Ethereum, which were in the limbo for the entire week, ended up on a positive note, creating buying opportunities in both.

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Edmund McCormack
Tech industry veteran and blockchain technology investor. Simplifying cryptocurrency for almost a decade.

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