Is There a Correlation Between Bitcoin and Stock Market?

Bitcoin has become a prevalent discussion subject, and has most likely made you think of trading cryptocurrencies. Throughout 2017, bitcoin encountered a huge rise trailed by a drop in early 2018. But because of its outrageous instability, you may be left wondering how well the market is likely do. IC Markets, an Australian forex broker, decided to check for similarities and differences between the stock market and the bitcoin/cryptocurrency market to give you some insight.

Bitcoin vs. the stock market

First of all why BTC and cryptocurrencies are so important nowadays?

Cryptocurrency is seen to have the potential to revolutionise the fiscal world as the internet did for the communication industry.

However, Cryptocurrency is viewed by institutional investors to be problematic in the fiscal industry because it is founded on the blockchain technology, which doesn’t have any form of focal governance. Some cryptocurrencies are finally back by the Government, such as yuan pay group. Despite that, cryptocurrency is successfully being exchanged in around 190 countries. Cryptocurrency trading is a still a very unstable market surrounded by vulnerability and a lot of speculation since it is still in early stages, besides its notable rise in public enthusiasm in the course of recent years. When compared to the traditional trading, cryptocurrency has a very minor market share with its aggregate market capitalization presently at $300+ billion.

ARE BTC and other Crypto acting as the stock market?

There is an intriguing comparison between the Bitcoin Graph and the stock market graph with S&P 500 and Dow Jones included. The stock exchange rapidly growing to higher heights and prior these statures, Bitcoin had similarly pitched up to $20,000 on Dec. 17 which is its highest of all time.

The question if the two markets had any correlation began when the two markets started to fall. To start with, it was Bitcoin which consistently dropped its cost towards $6,000 prior to hitting a ground. Then followed the stock exchange which fell more quickly. The pattern looked strikingly comparative, with them both hitting a ground at the end of Febraury. The highest one-day point fall in the history of Dow Jones Industrial Average was seen on Monday Feb12 while it was the worst day for the S&P 500 since 2011.

Is it possible to foresee future parallel trends?

Z-scores and fear gauge

In the chart below, Z-scores are represented by the numbers. The strength and the direction of the relationship of the two sets of data is represented by the z-scores. A greater correlation is an implication of a high absolute z-score, while a lower absolute z-score implies a lesser extent of a relationship.

Crptocurrency correlation mattix
Image source: Sifr Data

Taking a look at the correlation chart, the S&P 500 and Bitcoin relationship is at a frail positive relationship as demonstrated by the chart. However, Bitcoin and VIX relationship is at -0.31 thus a moderate negative relation.

Risk levels that are currently present in the market at any given time is indicated by the VIX thus known as ‘fear gauge’. Between Bitcoin and VIX, there ought to be an inverse correlation as indicated by the above chart. This was also shown on CBOE’s website article that overlayed the Bitcoin and VIX price. The relation appears to exist between Bitcoin and VIX not the actual stock market. However, Bitcoin was outperformed by VIX Index in regard to volatility in the last three years. During 2015-16, there was no correlation, the pattern was matched in 2017.

The initial relation between Bitcoin price and Stock graphs had a limited correlation as Fundstrat Tom Lee agreed and shared the sentiment on CNBC. Lee told “Trading Nations” of CNBC’s that Bitcoins can easily resemble a S&P chart since they both have an illustrative move after which give back a portion of these profits. That’s where the relation may come to a standstill.

Lee continued to say that the relation of the two very restricted. He further went on to discusses the relation, assuming any, was from an inconsiderate approach by cryptocurrency buying investors. “In the previous year, not exclusively did we have a solid rally in values, but also we had a solid rally in cryptocurrencies. I wouldn’t be astounded if those financial specialists who saw risk-on resources everywhere outperforming all around were likewise purchasing cryptocurrencies.”

Datatrek analysts added to Lee’s assessment about this ‘crossover’ of speculators. They expressed: “Financial investors will settle on comparative choices about stocks and cryptocurrencies when they see value instability in the latter since they have a single mind to process risk.”

Correlation in the future?

Wells Fargo head of equity strategy, Christopher Harvey, trusts that maybe there may be a stronger connection than has been expressed before, yet he, similar to Datatrek analysts and Lee, is connecting these relations inclined on sentiments rather than observational proof. In his opinion on the market hit can cause panic between investors and they end up selling their Bitcoins as well. “It occasionally stokes the fire.”

Harvey, and others, discuss comparable estimation meaning a comparative auction over the two markets. Once more, it is this thought that Bitcoin has crossed a limit into the standard market too that could maybe be causing this accepted correlation. Maybe customary speculators were exchanging hazard from the moderately stable values markets into Bitcoin, and the other way around, demonstrating again this hybrid that could be amalgamating the business sectors marginally as additionally expressed by the Morgan Stanley analysts.

The two markets are beginning to intermingle as stated by Octagon Strategy’ Trading Trainee, Marcus Poh: “Concerning it being related indirectly, I would state that BTC is considered to numerous as a fence against currencies, like that of gold. Accordingly, if the BTC demand, acceptance and recognition turns out to be substantially bigger, there is a possibility it would be in a comparative position to that of gold and stock exchange.”


What is the best way to trade BTC and other cryptocurrencies such as Ripple or Etherium?

Use of Trading platforms such as the IC Markets one is the most ideal method of exchanging BTC or any other ALT-Coins in a high unpredictable market such as crypto market. No need of owning a crypto with IC Markets, which is a genuine ENC broker. You simply need to examine the market and settle on your own choice on how BTC will perform contrast with the USD or other currencies and advantage from your decision.

The advantages of trading cryptos on IC Markets

For the first time investors enter a new and obscure trading territory, they encounter a considerable measure of stress. However IC Markets make it easy to invest and it’s true ECN broker, this means you are dealing with an Electronic Communication Network (ENC) which is truly the future method for the Foreign Exchange Markets.

Financial Information Exchange Protocol (Fix Protocol) is the modern technology used to utilize this linkage. The dealer gets liquidity from its liquidity suppliers on one end and makes it accessible for exchanging to its customers. On the opposite side, the intermediary conveys customers’ requests to Liquidity Providers for implementation.

The ECN consequently coordinates and executes the requests asked for, which are filled at the best accessible costs. Besides the current heritage web based exchanging settings, one other additional advantages of ECNs, is that the systems can be gotten to and are regularly more proficient amid “after hours” exchanging, which is an especially significant advantage for FX exchanges.

For traders executing expert advisories (EAs) for automated exchanging, ECNs are also additionally productive. This is due to accelerated speeds of execution. ECNs are configured differently, some to serve retail investors, others for institution investors while others are incorporated to traverse between the two segments, guaranteeing that retail brokers can encounter comparative levels of statements and spreads to that of organizations.

Finally, ease of Crypto trade and other items is achieved through a user friendly interface of the IC Markets.

Besides cryptos, what other kind of instruments are popular among IC Markets’ traders?

Tech stocks listed on NASDAQ are popular. A considerable number of our Southeast Asian customers additionally exchange money and gold.

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