Bitcoin’s correlation to US stocks is waning – why that could be a good thing for BTC price

Bitcoin. Source: Adobe

The positive correlation between bitcoin price and US stock prices, which hit a record high in 2022, is fading. Bitcoin bulls will be hoping that this decoupling bodes well for Bitcoin, as it could mean the ongoing US stock market struggles could become less of a headwind for the world’s largest cryptocurrency.

According to a chart presented by CoinMetrics, the 60-day Pearson correlation between the price of BTC and the close of the S&P 500, the most widely used US stock market benchmark, fell to its lowest level since April at 0.30 earlier this week 2022.

The correlation had hit an all-time high of 0.667 in September 2022 after surging earlier in the year as crypto and stock prices collapsed together amid concerns of a stronger-than-expected rise in US inflationary pressures and the resulting tightening response of the US Federal Reserve.

Bitcoin and the S&P 500 were smoked together in 2022. Source: TradingView

The drop in correlation between the two asset classes follows crypto’s impressive year-to-date rally. Bitcoin is most recently up around 35% year-over-year, while the S&P 500 is up a far more modest 4.0%.

Could a lower correlation to stocks mean the bear market is over?

Bitcoin’s increased correlation with U.S. stock markets in the second half of 2022 was a clear sign of the ongoing bear market that saw BTC slip as much as 77% from its record 2021 highs of $69,000 to November lows.

Previously, the 60-day Pearson correlation between bitcoin and the S&P 500 has only hovered around 0.3 a few times, falling below zero frequently. The few years up to 2022, when Bitcoin’s correlation to US stocks was significantly weaker, were marked by significant price gains.

Bitcoin rallied over 2,000% from its 2018 lows of just over $3,000 to its record highs in 2021. Bulls will hope that a lower correlation between Bitcoin and stocks, as was the case in late 2018 through late 2021, will ultimately be a feature of an upcoming bull market.

Equity investors are concerned that the Fed’s aggressive efforts to curb US inflation, which currently remains more stubborn than expected as the US economy beats expectations, will lead to a deeper recession in corporate earnings later in the year and another blow to stock valuations that have already taken place suffered from the higher risk-free interest rate (ie higher US Treasury yields).

As a result, almost no one is betting on a short-term rally in US stock prices back towards record highs. But a weaker correlation could allow Bitcoin to rally this year despite ongoing pessimism about the US stock outlook. However, the fall in BTC price from its recent highs above $25,000 has caused some on-chain indicators to send a less optimistic signal regarding the profitability of the Bitcoin market on the prospects for the world’s largest cryptocurrency by market cap. Some fear Bitcoin could dip back below $20,000 in the near future.

Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers