The Director of Research at Pension Partners, Charlie Bilello, has found zero correlation between the S&P stock market index and the price of Bitcoin in data stretching back to 2010. This debunks a popular theory that Bitcoin and the stock market were correlated since they both reached record highs near the beginning of 2018. Since May 2018 the stock market has been moving upwards while the Bitcoin market has gone downwards, totally opposite of the theory that Bitcoin and stocks move up and down together.
Bitcoin hit all-time highs near 20,000 USD per coin in December 2017. About a month later the S&P 500 Index, which is one of the most popular measures for stock market health in the United States, reached highs near 2,900 on 26 January 2018. The stock market and Bitcoin had both been rallying throughout the entirety of 2017, giving the impression that perhaps there was a positive correlation.
Further evidence towards a possible correlation is that the S&P 500 hit its lowest levels in 2018 so far on 8 February, about the exact same time as Bitcoin hit its lowest levels of the year so far at 6,000 USD. Perhaps there was a common cause for these market movements in early February 2018 since the synchronized timing of the minima in the stock market and Bitcoin market is quite striking.
When stepping back and looking at the longer term, there is clearly no relationship between stock movements and Bitcoin price. Bitcoin is down 60% since its peak in December 2017 while the S&P 500 is up 4% during the same time. Likewise, during the Bitcoin bear market from December 2013 through January 2015 Bitcoin fell 85% and the S&P 500 rose 12%.
A very important point that Charlie Billelo mentions is that correlation is meaningless without causation. Stock prices are tied to long-term corporate earnings, while Bitcoin price is influenced by entirely different factors since it is a decentralized currency.
A possible connection between stocks and Bitcoin is that Bitcoin can be a haven to store money when stocks are crashing. However, although institutional investment infrastructure and interest in cryptocurrency are ever increasing it is still a relatively small factor at this time. Perhaps when institutional investment infrastructure becomes more widespread, and the stock market crashes, then this mechanism will come into play and Bitcoin will go up while stocks go down.
In any case, if Bitcoin became a significant money haven during stock crashes then the Bitcoin market and stock market would have a negative correlation, which is opposite of the theory stemming from price movements in 2017 that the stock market and Bitcoin market have a positive correlation.
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