For most of the year, the world’s largest and most dominant cryptocurrency, Bitcoin, has noted a strong correlation with the world of traditional finance. In fact, over the course of 2020, the S&P 500, Gold, and Bitcoin have been the focus of the market, given the growing uncertainty and some speculation with regard to Bitcoin’s robustness as a store of value and safe-haven asset.
Interestingly, market data provided by Santiment has highlighted a fairly new development for Bitcoin, as to its correlation with the S&P 500, with the same falling to zero – A radically different move given how the rest of the year has played out. In fact, this is the first time this has happened since May. However, what does this mean for the cryptocurrency market?
Bitcoin’s price has always benefited when it has exhibited low correlation stats with the world of traditional finance. At press time, Bitcoin was continuing to trade just below the $13K price level, after having surged by over 14% over the previous week.
While the correlation between the S&P 500 and BTC falling from 57 percent to close to 0 percent came as a welcome surprise, the reason behind it still seems to induce much debate. Santiment noted,
“This is a great sign for crypto after having an all-time high correlation in August. BTC has historically thrived when its reliance on world markets, and other asset classes & industries, is minimal, and trading can operate independently without interference from non-crypto events as distractions.”
The price hike definitely has played a part in the 30-day rolling average. However, there is also the possibility that this is just a momentary drop on the back of a fairly positive week for the crypto-market, one that saw one of the world’s largest payment service providers, PayPal, announce that they are extending support to cryptocurrencies like Bitcoin in 2021.
With Bitcoin’s growing independence in relation to other non-crypto assets established, is a bull run likely? Interestingly, while the correlation with the S&P has changed radically, its correlation with gold, one of the key assets of traditional finance, continues to be quite strong. Market data provided by Skew noted that after having exhibited a negative correlation earlier in the month, BTC-XAU’s 1-month correlation has now risen back to over 23 percent. This implies that Bitcoin is still tied to the traditional market to a certain degree.
While an independent Bitcoin is the best-case scenario for its price and by extension the altcoin market, the realized volatility for BTC as per data from Skew continues to fall – A finding that may point to the inevitability of a period of consolidation for Bitcoin.
Bitcoin’s 1M realized volatility fell from 58 percent to close to 38 percent over the past few weeks and can signal a bit of stagnancy for its trading price. As of now, the coin is still trying to breach the $13K resistance. While much of the community has been eagerly waiting for a 2017-esque bull run as the year comes to a close, it may still be a bit out of reach. However, given the larger scheme of things and the overall economic environment, BTC’s present price point is fairly positive.