EUR/USD and Bitcoin: an unusual correlation

EUR/USD and Bitcoin: an unusual correlation

By Mircea Vasiu - min read
  • BTC/USD and EUR/USD move in a direct correlation
  • Bitcoin’s higher volatility explains the late bounce from the lows
  • EUR/USD may help in understanding and trading BTC/USD

Bitcoin was released in 2009 as open-source software and started what is now known as the cryptocurrency market. The first real-world transaction took place one year later when a programmer bought two pizzas using 10,000 Bitcoins.

Fast forward to 2023, Bitcoin trades at around $23k. Also, its all-time high is above $65k – quite a difference from the 2010 levels.

In between, Bitcoin’s adoption increased both among retailers and institutional investors. Nowadays, the cryptocurrency industry is consolidating, and more and more projects are being launched, despite some inevitable drawbacks.

Bitcoin’s institutional adoption is responsible for its being more correlated with classic financial markets. However, its volatility exceeds other markets’ volatility, which makes it interesting when looking at its correlation with other assets.

For instance, the EUR/USD and BTC/USD have both moved higher in 2022. The only difference is Bitcoin’s volatility, which led to opportunities for those believing in the correlation between the two markets.

BTCUSD chart by TradingView

Trading Bitcoin using the EUR/USD exchange rate

The EUR/USD exchange rate bottomed in October last year. It bounced from below 0.96 and climbed all the way to above 1.09 before giving up some gains.

Investors are cautious before the two central banks, the Federal Reserve of the United States and the European Central Bank, release their policy decisions later this week.

But a simple look at the chart above tells the story of two correlated assets.

After EUR/USD bottomed in October, Bitcoin made a new lower low. However, it caught up with the US dollar’s weakness and rallied much more than the EUR/USD did.

Once again, Bitcoin’s higher volatility explains the extreme movements. So far in 2023, it has been a good strategy to buy Bitcoin while below the EUR/USD exchange rate and sell it while above.

Will this correlation hold after the two central bank decisions due this week?