We hear a lot about how bitcoin moves with the US Market so here I ran a detail analysis. Word of caution though, correlation does not imply causality so if two things correlating we can’t say for sure if they are influencing each other or is there another hidden variable.
***Method***: I download all the data from Yahoo finance for Bitcoin, S&P500 and others. Included in the download was also ethereum, gold and VIX. VIX is the “fear index”. The merged data starts from 2017-Nov so that is where we would start.
***Results of correlation for the entire range***
each cells contains a correlation coefficient of the comparisons. A perfect correlation is 1, 0 is no correlation and -1 is anticorrelated, meaning if 1 goes up the other goes down.
* we see that S&P correlates very well with Nasdaq, at .9 which is almost perfect.
* S&P is anticorrelated with the fear index aka VIX and does not correlate with gold. Making gold a good hedge.
* However for the entire range, S&P only has a correlation of .23 with BTC. This is statistically significant **but weaker than I would expect so I dug a little further and ran correlation for each year**.
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So as you can see the the correlation seems to be going up starting in 2020. There used to be no correlation but something happened around this time.
Next I ran a correlation month by month to detect any trends. And it was again surprising that the each month the correlation changes so drastically, with some months even in in the anti correlated portion, meaning BTC is moving in the opposite direction.
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*Vertical dotted grey lines demarks years. Color green is when correlation > 0 and red < 0. The black horizontal lines is set to 0.*
***Summary***.
1. The idea that BTC has increase in correlation recently is only partially true as you can see even in 2017 there were months with high correlations. Thus the correlation between BTC and the market seem to change on a monthly basis.
1. Although on a global trend, the correlation is menacingly getting higher.
2. there were some months were BTC was actually anticorrelated – at this point then it would be a perfect hedge for the stock market. The lowest months were the following. **Note that its usually in the summer time**.
Here are the months with the highest correlations and interestingly this is usually in the winter time. hmmm. interesting.
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TLDR: correlation of BTC with the market seem to change month by month and in some cases its even the opposite however year over year the correlation does seem to be going higher.
All the big boys getting into crypto. That’s the reason
**TLDR: Yes it does**
– Wallstreet money came into the cryptomarket starting 2020 so it is not surprising that correlation jumped up from 2020.
– There seems to be more correlation when stock market is volatile. This makes sense since crypto is treated as add-on-risk asset to the wall street people and as such, acts as a multiplier when risk is high.
– For an investor in 2022, data on correlation from pre-2020 is kind of meaningless.
– Many of the wall street traders use bots that trade BTC based on the NASDAQ (or other index) price. And right now, these bots are being fully used which means that NASDAQ and BTC are correlated more than ever (I believe around 0.5 or 0.6 in 2022).
– There is no diversification between NASDAQ and BTC right now. NASDAQ to Bitcoin is equivalent to BTC to alts at the moment.
Always hear people that understand and know both the stock and crypto markets that they like to use Bitcoin as a liquidity gauge. And ever since I read that I can see why they say that
Didn’t want to put in the main text, but don’t mistaken correlation for causality.
for example, wearing shorts correlates with eating ice cream however wearing shorts does not cause you to eat ice cream and vice versa. Same with BTC and the market. There may be some other hidden variable here that is driving these.
I’m a big fan of dollar cost average investing into traditional index funds like the S&P500, and I think a lot of folks could also benefit from taking the same approach with crypto. There are plenty of options out there for those who want the exposure and also want to mitigate timing risk.
Isn’t the reason for this that investors treat their crypto investments like stock investments? And trade based on bullish/bearish news for stocks
Hey, fantastic DYOR.
I’ve been saying something happened in 2020, but it wasn’t Covid.
It was the fiat masters saying, “Fuck this if you think you’re going to kindly walk away with our Trillions.”
They’ve been manipulating to scoop as much as possible in order to control market flow.
Thank you, sir.
OP, have you analyzed the derivative (delta) of your day to day changes? If you do, you might calculate your standard deviation of the day to day changes. Then, do like a Student’s(?) test to eliminate days that are beyond 3-sigma and see what correlates.
I’ve had to do this occasionally when deriving regression models using JMP or Minitab. It eliminates data points that throw off the correlation. But I’m assuming you are looking for common cause, correct? If you can tie the date to an event (special cause), it might be worth eliminating to see if you get a tighter correlation.
Great analysis and write up OP.
The correlation between NASDAQ &S&P and the correlation between BTC & ETH aren’t that surprising, but there seems to be a quite strong negative correlation between FEAR and the two stock markets. Is this FEAR the BTC index, or is this something specific to the stock market?
If it’s the BTC one, it would kinda make sense (e.g. low number on the fear index for BTC, people moving cash to safer investments, and vice versa). Obviously we can’t say for sure (people moving cash out of crypto and in to stocks would also cause the fear rating to drop), but it’s an interesting observation.
Highest correlation in winter might be because of market makers having to do end of year tax reporting.
As for correlation not happening every other month, that’s there to make people _believe_ crypto is a hedge. In reality the same people own a majority of everything.
Surprised with how uncorrelated gold is performing.
Damn great post tbh. u/greenappletree Have you tried layering the overall and bitcoin market caps or BTC dominance over time on these charts? Wasn’t 1 trillion $ like some magic Wall Street number or so?
This is quality research and shows the increasing correlation since 2017. I can only assume that if a recession hits, crypto will not be spared.
This was beautifully done…
Crypto moves with the same MM and SHF’s decisions that move the stockmarket. Algo trading is a bitch and should be forbidden.
I see stats, I give gold
Love these kind of posts. I don’t know enough yet to understand the math behind it, so i couldn’t know how correct it is. But i definitely appreciate the effort and constructive reasoning. I’m on reddit for xactly these kind of posts that can teach.
I love seeing more and more of these kinds of data driven posts. Good analysis OP!
The closer we get to mass adoption is the more crypto will start moving with the other markets imo. But crypto will always be the most volatile especially taking alt coins into consideration
This is an interesting analysis
Top quality post.
So basically the crypto market almost does whatever the fuck it wants.
All the markets depend on each other’s trends but my darling Crypto gives more returns than any other asset created on this planet called Earth! *I think I got overdramatic here*
Interesting about the seasonal correlations, though if we looked outside the US and on a worldwide basis, we all have different seasonal cycles. (I realise this was done on US modelling!) 😀
Very cool read, love it when someone does the math, have an award!
The only time that they seem to move together is when there’s a FUD like today, other than that Bitcoin seems so bullish and will do whatever the fuck it wants.
>Year over year the correlation does seem to be going higher.
Isn’t this the result of “institutional investing”?
Like the honey badger, crypto don’t care
I like your funny words magic man
>So you can see the correlation seems to be going up starting in 2020. There used to be no correlation but something happened around this time.
That something was COVID lockdown that pushed the unlikely adoption.
> Here are the months with the highest correlations and interestingly this is usually in the winter time.
Incredibly bullish on the Spring resurgence. Not long to go…!
Good analysis here, well done on providing an instant way of seeing whats happening with what.
As more people come aboard and adoption is widespread it will just be another investment platform that is chosen for people to park their money. Crypto is tiny right now compared to the others on that list but will absolutely be huge by end of this decade.
It kinda does but not always. Imo there are tons of people in crypto that only use it to make money. They don’t give a fuck about the future and just ride the waves in both the stock market and crypto market. As soon as there is bearish news they just short on both.
Can you jump right to the point and make the TLDR: a meme?
Big boys with big money moving to crypto and diversifying. Swinging both markets up and down.
USD is power
In total its more correlation than not
That title is mildly buzzfeedy
Just follow Dylan leclair and will Clemente on Twitter they’ve been posting data for months about the correlation