Bitcoin’s (BTC) correlation with the S&P 500 is at a 2-year high. This is a bearish sign for the cryptocurrency market.
Cryptocurrency market research firm, Santiment, pointed out that the recent market downturn resulted in a high correlation between Bitcoin and the traditional financial markets in a March 20 tweet.
According to Santiment, Bitcoin’s correlation with traditional equity cyclically moves from negative to positive values. The coronavirus pandemic, according to the firm, resulted in the growth of this correlation:
“With this pandemic, we are obviously seeing very similar movements in tandem as the coronavirus justifiably has investors in virtually every sector in a similar state of cautiousness.”
High correlation is a bearish sign
Santiment explained in its tweets that historic Bitcoin data shows that when the correlation with the S&P 500 is high, it is typically accompanied by major downturns in the cryptocurrency markets. The firm also notes:
“Any subsequent bounce-backs over time are typically foreshadowed by a growing ‘decoupling’ between BTC and the S&P. We should see a clear sign of an impending uptrend when this correlation line is beginning to approach 0 (or lower) again.”
Investor sentiment regaining positivity for Bitcoin
When Bitcoin has first seen its recent downturn earlier this month, Bitcoin bull and Galaxy Digital CEO Mike Novogratz said that investors have lost confidence in Bitcoin. He explained:
“[Bitcoin] was always a confidence game. All crypto is. And it appears global confidence in just about anything has evaporated.”
Still, some prominent figures in the cryptocurrency market have regained confidence in Bitcoin, following the asset’s recent rebound. The founder and CEO of Global Macro Investor, Raoul Pal, recently said that he is quite bullish on Bitcoin after the asset recovered by nearly 80% in just one week.