Crypto Vs Stocks: Correlation Trends In The Bear Market

Bitcoin’s BTC/USD all-time high (ATH) and growing popularity have changed its lack of correlation with equity markets. Amid the heavy debate, analysts have suggested an increasing connection between tech stocks and cryptocurrency prices. 

This slowly nourished relationship has been developing strongly over the past year. In May, Cathie Wood-led Ark Investment Management projected Bitcoin’s correlation with the S&P 500 to reach an ATH of 80%, saying that this "continues to suggest that market participants view Bitcoin as a risk-on asset”.

History Repeats Itself, First As Tragedy Then As Farce

The U.S. Federal Reserve’s decade-old “Pre-FOMC Announcement Drift” report speaks on trends of equity markets before and after FOMC meetings. 

The report documents large “average excess returns” on U.S. equities in anticipation of “monetary policy decisions” made at scheduled meetings of the Federal Open Market Committee (FOMC) in the past few decades. These pre-FOMC returns have increased over time and account for sizable fractions of total annual realized stock returns.

While financial markets initially dropped by a few points on speculations over the Fed's latest interest rate hike, they rebounded soon after, pulling Bitcoin up from an 18-month low as well as altcoins. This provided further proof of the correlation as shown in the graph above. 

Mirroring Liquidation Candles 

On 16th June, leverage traders experienced another billion-dollar liquidation candle — a replica of what happened with the S&P 500 at the same time around 2:00-2:30 pm ET.

Bitcoin’s low was observed at $20,425 and the high at $22,070, with a $1,645 stretch. Similarly, S&P 500 was marked at a high of 3,818 and a low of 3,722.
Since the U.S. stock market is active for a few hours of the day compared to 24/7 cryptocurrency trading, it is yet to be understood how markets catch up with each other's trends.