Bitcoin Moves Lockstep with S&P 500

KEY TAKEAWAYS

  • June has been a stale month for Bitcoin, contrary to historical trends and market anticipation
  • Bitcoin shows even stronger correlations with traditional assets 

Despite past records of June being more exciting, macro indicators such as on-chain activities, spot and derivative volumes are reaching lows. The realized volatility skydived again in mid-June and fell below market expectation, also showing a downward trend towards the end of June. Future market shows fatigue as the promise of a breakout above $10,000 fails. The average daily trading volume has also been trending down significantly since April. 

Source: Skew   
Source: Skew    

Open interest of the futures market has picked up since the Black Thursday in March but has not reached the previous high.

Source: Skew

On top of that, Bitcoin is seen to lockstep with the traditional financial markets, as Bitcoin’s correlation to S&P 500 index hits record high. The realized 1-year correlation between these two assets reached 0.370 by last Friday, up from 0.06 in January.           

Source: Coinmetrics
Source: Coinmetrics

If we zoom in and look at Bitcoin’s short-term correlation with the equity index, as the levels of market expectation and speculation remain up in the air, the correlation becomes more telling. According to Skew, the one-month correlation peaked on July 8, reaching a record high of 0.788.   

Source: Skew 

Historically, BTC has exhibited low correlations with traditional asset classes. However, since the liquidity crunch in March and the Fed’s expansionary monetary policy that followed, all the asset classes are moving in the same direction. 

The correlation between Bitcoin and gold stays relatively stable.

Source: Skew

Given the aggressive monetary policy, it may be the best timing for Bitcoin to prove its worth as an inflation hedge asset.