The argument continues over whether bitcoin and stocks are correlated. Some say they are, while others say that the crypto industry follows a path all its own.
So, Do Stocks and Bitcoin Follow Each Other?
At the time of writing, the stock market (Dow Jones) has spiked another 100 points, while crypto, for the most part, remains somewhere in the middle. Over the last day or two, we’ve seen many digital assets incur small spikes, while others have taken a few steps back.
Bitcoin, for example, was trading as high as $6,700 last Friday, but today, the currency is trading for just under $6,500, marking a more than $200 fall over the course of just five days.
Despite what appears to be evidence of bitcoin and its altcoin cousins having minds of their own, the stock market does appear to be leading the crypto industry along a similar path. While bitcoin and the Dow don’t appear to be following each other today, they have certainly done so at certain points during the past few weeks, and it’s these instances that have tantalized analysts’ imaginations.
Among those intrigued by what appear to be correlated movements is Jack Tran, the founding partner of Kronos Research in Taiwan. In an interview, Tran explained:
Bitcoin is still largely correlated with financial markets overall it seems, and from what I can tell, we are still headed lower in stocks, so bitcoin will presumably follow. Also, since bitcoin is priced mostly in USD, I suspect the dollar rally is also adding some pressure.
Others make note of how bitcoin is potentially moving as it was predicted to during the early parts of 2020. Max Boonen – CEO of B2C2, a London-based market maker – stated:
Bitcoin rallied last week on inflationary fears in the U.S. It is the first time this year that it behaved as promised.
His words suggest that perhaps bitcoin and the United States dollar are more closely related in their movements and patterns than originally thought.
But others aren’t convinced of bitcoin’s relationship status to other assets. In fact, while equities took a nasty turn at the end of last week, bitcoin rose nearly $500 within a few short hours, placing its correlation with stocks in doubt. Richard Galvin – CEO of Digital Assets Capital Management – wrote in a tweet:
We think the correlation to traditional markets will ease now that most cross-asset class investors have sold out.
This $500 rise proved short-lived, however, as bitcoin ultimately lost all its gains over the weekend and dropped to roughly $6,050 by Sunday evening. It has since gained $400 back and trading in the mid-$6,000 range.
Things Should Be Steady Soon
Still, men like Jehan Chu – co-founder of Kenetic Capital – insist:
Barring any further cataclysmic shocks to the economy, I expect BTC will rally faster and harder than public markets.