As we continually witness parallels between Bitcoin’s performance and the S&P stock index, we take a closer look to discover what may be linking these two markets.
S&P 500 is a stock market index that tracks the market cap of all companies registered. By recording the risks and returns of these large businesses, the S&P represents the overall stock market performance.
Bitcoin has shown some less obvious tendencies to correlate with the S&P 500 in the past, but during the recent COVID-19 crisis, these parallels have become much clearer and more consistent.
The most likely reason for this, is that as billions of dollars evaporate across various markets, people begin to sell everything they can in order to cover these losses, including their BTC. Investors may now feel that Bitcoin is not the safe haven that they had hoped it would be.
In truth though, disaster will always incentivise an initial sell-off, and many economists now feel that the Bitcoin will bounce back stronger than ever as the markets begin to recover. It is still quite an unsettling time for those who are already heavily invested in the original cryptocurrency and as the relationship between the price of BTC and the S&P 500 index continues, a sudden crash for stocks would probably involve a severe impact on this digital asset as well.
If the larger financial movers had more faith in Bitcoin and behaved a little more bullish by holding onto the coin, this apparent link between markets might be broken. Unfortunately, however, even though Bitcoin is decentralised and has a limited supply, many still perceive it as a high-risk asset and begin to liquidate their investments as the global economies continue to suffer.
The shedding of some of these speculators could be viewed as a very good thing though. It may be quite worrying to see the price of Bitcoin drop in the short term, but it does create an ideal buyers’ market. Not even the bears could have seen the recent plummet of Bitcoin coming, but this ‘black swan’ event reveals another quite important fact: Bitcoin had certainly captured great interest from the big financial institutions over the last couple of years.
Many of these ‘whales’ who had no interest in the philosophy or mission behind Bitcoin were likely to jump ship at the first sign of trouble, but those who have done the research understand that this short-term volatility is temporary. The fundamentals of this revolutionary currency remain the same.
Crypto enthusiasts who feel that Bitcoin is the best form of currency the world has ever seen, believe that this correlation with the S&P is merely indicative of short-term panic caused by the recent coronavirus pandemic. These investors look to the long-term, where they anticipate huge leaps in the price of Bitcoin once the current crisis has abated.