Bullish or bearish? Correlation between Bitcoin and S&P 500 back to a 10-month low
The correlation between Bitcoin (BTC) and the S&P 500 has reached a 10-month low. Historically, this is a bullish sign for the dominant crypto currency.
A low correlation with the S&P 500 is an optimistic factor for Bitcoin because Crypto Investor it means that BTC does not lag behind the broader risk market. The analysts of Santiment:
„The correlation between #Bitcoin and #SP500 $SPX is great to see when $BTC can fluctuate independently of traditional markets. We have found that #crypto is best when that correlation is low… and our 30-day correlation model shows that it is at a 10-month low.
Why Bitcoin is likely to outperform the S&P 500 in the medium term
The correlation of Bitcoin with the S&P 500 could decrease or remain low in the short term for two reasons.
First, the U.S. stock market could correct in a take-profit pullback while Bitcoin continues to recover.
Second, the U.S. stock market could rise in tandem with BTC, but Bitcoin is posting a larger profit over a longer period of time.
Large investment banks such as JPMorgan believe that the U.S. stock market is in the middle of a bull run. The strategists say that US equities could suffer a setback in January if stocks continue to rally.
Nevertheless, the strategists expect the momentum of stocks to spill over into 2021. If this is the case, the latter scenario is more likely, in which Bitcoin would have to outperform the S&P 500 to maintain a low correlation.
The post-halving cycle remains the most compelling reason for a continued upward trend of Bitcoin in 2021, which could allow BTC to outperform the S&P 500.
Background: Bitcoin undergoes a Block Reward halving every four years. The last two halving took place in 2012 and 2016, and after each halving, the BTC price increased over a long period of time.
Historically, a Block Reward has had a positive effect on the price of Bitcoin, as it affects its scarcity. After each halving of the Block Reward, the amount of BTC that miners can mine decreases. As a result, there is less BTC produced daily. As the supply of BTC is fixed, BTC becomes scarcer as a result.
Bitcoin tends to recover after each halving for 12 to 15 months. Considering that the last halving took place in May 2020, BTC could recover by mid 2021 if past bull cycles continue.