The correlation between the S&P 500 and Bitcoin is only increasing, inching closer to reaching levels where in the past the cryptocurrency strengthened.
Meanwhile, the S&P 500 just closed its January monthly session outside of a key trend line the entire world of finance has been watching. Here is why a possible breakout in the stock market could propel BTC higher along with it in a perfect storm scenario.
The Stock Market Closes Monthly Candle Above Key Trend Line
The S&P 500 index is often considered the best measure of the overall health of the US stock market, and indirectly, the economy. It’s used as a benchmark to compare the alpha and beta of other assets and individual stocks.
Positive performance in the SPX is associated with periods of prosperity and profitability. If the stock market is doing well, it is a signal for investors to switch to risk-on strategies.
The S&P 500 could be breaking out of a year-long pattern | SPX on TradingView.com
The S&P 500 is potentially breaking out of the upper boundary of a long-term trading pattern: a descending broadening wedge. Price is holding above the pattern on the daily timeframe through the January monthly that just came to a close.
And while further upside would bode well for cryptocurrencies by default, increasing correlation between BTCUSD and the SPX is what makes a possible breakout in the stock market that much more bullish for Bitcoin.
Bitcoin Correlation With S&P 500 Index Increases
The chart above shows the breakout in action in the daily and monthly timeframe in the S&P 500. Bitcoin price is moments away from closing its January monthly candle with more than 40% ROI. Other cryptocurrencies have significantly outperformed during the month.
Both BTCUSD and SPX rising in tandem this month has restored the increasing direction of the correlation between the two vastly different investment vehicles.
The correlation with the stock market is only increasing | BTCUSD on TradingView.com
With a correlation coefficient of 0.88, the SPX and BTCUSD are at some of the strongest positive correlations historically. Past bear markets in crypto have switched Bitcoin into negative correlation territory. This time, however, has been different.
An increasing correlation has in the past been associated with some of Bitcoin’s most explosive bullish moves to the upside – especially after reaching a correlation of 0.93. With the correlation potentially increasing and a possible breakout in the SPX, could there be a perfect storm brewing for the top cryptocurrency by market cap?
Follow @TonyTheBullBTC on Twitter or join the TonyTradesBTC Telegram for exclusive daily market insights and technical analysis education. Please note: Content is educational and should not be considered investment advice. Featured image from iStockPhoto, Charts from TradingView.com
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Tony Spilotro
I’m Tony Spilotro. Behind the pseudonym, I’m a digital media executive and global remote work leader with a decade of content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck – literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn’t yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can’t yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter and feel free to drop me a line if you would like to work together.
