Bitcoin Price Correlation Strength with US Stocks Reaches a 20-Month Low: Here’s Why This Point Is Boding for Bitcoin

Cryptocurrency analytics company CoinMetrics reported that Bitcoin’s correlation with US stock markets has fallen to its lowest level in more than a year and a half. The company provided a chart showing that Pearson’s 30-day correlation coefficient for Bitcoin-BTC with the S&P 500 index fell below 0.20, its lowest level since September 2021.
The pullback is a significant reversal from mid-2022, when bitcoin and stocks were largely parallel, with the 30-day correlation briefly surpassing 0.7 at that time.

Given the divergence and divergence in performance of the Bitcoin price – which has been on the rise while the S&P 500 index seemed weak over the past two weeks – this correlation is likely to continue to decline. And if it drops below 0.08, it will reach its lowest level in three years.
Why is Bitcoin’s correlation with stocks collapsing?

During the years 2021 and 2022, (Bitcoin-BTC) was viewed – to a large extent – as a technical speculative asset, and that it should be traded according to liquidity conditions, just like technical stocks. This explains to a large extent the reason for the remarkable rise in the Bitcoin currency during the years 2020 and 2021 when the US – and global – economy was driven by fiscal and monetary stimulus, before it declined strongly in 2022 as a result of the major central banks raising interest rates mainly.

It seems that the rise in Bitcoin for the years 2020 and 2021, and then the decline that occurred in 2022 means that its price moved in a large proportion with prices in the technology stock sector in the United States. However, the growing financial crisis since early 2023 is putting that relationship to the test.

Instead of viewing Bitcoin (BTC) as a speculative asset (like technology stocks), investors may finally start seeing it as what its creators and backers intended it to be, i.e. a safe alternative to the traditional securities-based fractional-reserve banking system that relies on on central banks.
In fact, the past few weeks have proven that views of Bitcoin as “digital gold” can be correct. Bitcoin has risen more than 40% from its previous monthly lows when it reached below $20,000. This rise in Bitcoin (BTC) comes in parallel with the rise in gold prices, and this may be due to investors’ search for alternative currencies or trading media that are “more difficult” than traditional currencies, and provide greater security for their investments.
It should be clarified here that traditional currencies such as the US dollar, the euro, and the pound sterling are not considered definitive assets such as gold and bitcoin, because they are easily exposed to losing their value as a result of inflation.

Thus, Bitcoin-BTC became a safe haven at a time when US stocks were witnessing a clear decline, as investors were concerned about the uncertainty about how bad the current problems in the banking sector would be, and the impact on economic growth expectations.
Explanation of the rise in the price of Bitcoin due to the decline in its correlation with stocks

It seems that the perception of Bitcoin as just a speculative technical asset may soon disappear, because it is – rather – a very strong and reliable cash payment system, which works on a peer-to-peer pattern, and is also characterized by decentralization; Therefore, it provides a real, fairer and more transparent alternative to the current financial system.

It also seems that investors have finally begun to deal with Bitcoin in this way, which constitutes incentives for the rise of this digital currency. If the banking crisis worsens and stocks fall as a result, this is likely to spur gains in Bitcoin as a safe haven under these circumstances. Even if the US authorities were able to avert the currently expected crisis, it seems that the economic hardship resulting from more stringent financial policies on the part of the US Federal Reserve has become a reality that cannot be avoided.

As a result, the policy of raising interest rates is likely to end soon. And if the upcoming financial conditions are easier – which means a decrease in US revenues – then this should be good for both gold and Bitcoin.

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