The S&P 500 Is Surging Towards a New ATH: Will Bitcoin Follow?

Nick Chong

1 year ago

3 mins read

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Bitcoin is once again effectively flat. According to data from Coin Market Cap, the leading cryptocurrency has literally gained only 0.15% in the past 24 hours as of this article’s writing. BTC’s performance — or lack thereof — is even more striking when you consider that the asset has traded within the same 5% range for the past two weeks now.

Yet with the stock market showing extreme strength, Bitcoin could rally. After all, a tight correlation has formed between the two markets that should lend to appreciation in the value of BTC in the near future.

Bitcoin Could Surge as S&P 500 Sets New Local Highs

Despite a worsening pandemic and uncertainty in the economy, the S&P 500 surged higher on Monday after a slow start to the trading session. At the session close on Monday, the leading stock index traded 0.85% higher than where it started. The S&P 500 now trades at 3,251.84, the highest value since the start of the capitulation event in February 2020.

The strength in the S&P 500 is seemingly in response to two things:

Extreme strength in the value of technology companies like Amazon, which is up 8% on the day.
The U.S. Treasury Secretary, Steven Mnuchin revealing that the next stimulus bill will involve at least $1 trillion worth of funding.

Bitcoin could rally once as it is currently lagging behind the S&P 500 as shown in the chart below from a cryptocurrency trader.

Chart comparing the price action of Bitcoin, Ethereum, and the S&P 500 over recent weeks from trader "SalsaTekila" (@SalsaTekila on Twitter). Chart from TradingView.com

Bitcoin stands to benefit from the ongoing surge in the stock market because of the correlation between the two markets.

Mati Greenspan, the founder of Quantum Economics, found earlier this year that the BTC and S&P 500 have the highest correlation value since January 2011.

This correlation has become so apparent that even analysts that don’t follow this market 24/7 have taken notice. A JP Morgan analyst team noted in June that since March’s crash, “Cryptocurrencies have traded much more like” equities than they did before.

What’s the Cause of the Correlation?

Behind this correlation purportedly is a thin market. One cryptocurrency trader commented:

“It comes from an overall thin market. Derivatives are doing record low volumes and generally haven’t recovered any of their open interest as a whole. Coinbase daily volume is ~$80m on most days and BitMEX is getting dragged around by it (which drags around the other derivs).”

With Bitcoin flatlining, failing to move independently of external catalysts, it appears that this lack of liquidity may continue until BTC starts moving.