Main navigation

Stocks Might Be Reason Behind Crypto and Bitcoin Drop, Here's Why

Opinions
Tue, 01/11/2022 - 10:58
article image
Arman Shirinyan
High correlation with stocks might tell us more about the most recent correction
Stocks Might Be Reason Behind Crypto and Bitcoin Drop, Here's Why
Cover image via stock.adobe.com

Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of U.Today. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.

Read U.TODAY on
Google News
Contents

Bitcoin's 17% correction started at the end of the last year was not a surprise for numerous analysts and professional traders, but at the same time, the reasons behind such a drop were unclear. But according to data from TradingView, we can name the possible fuel for the current correction.

Bitcoin's correlation with stocks

While the correlation does not seem obvious at first glance, if we compare the movement of Bitcoin and the S&P 500 since Jan. 5, we can see a strong spike in correlation, which is most likely caused by the Fed's hints regarding the increasing of the interest rate in March.

Bitcoin Chart
Source: TradingView

While increasing the interest rate should not directly affect Bitcoin or any other cryptocurrency out there, it is still a strong risk-off signal that traders momentarily project onto their portfolios.

With the popularity spike in Bitcoin and other digital assets as diversification tools, traditional traders have been purchasing cryptocurrencies actively to increase their risk exposure during the strong risk-on phase on the market.

Risk-off comes on the scene

With the Fed's announcement, traders have decided to exit all risk-on assets like cryptocurrencies and stocks, which has driven the price of both types of assets down.

Related
4,118 BTC Bought Since November by Mega Whale Who Holds 123,000 Bitcoins

According to correlation indicators, Bitcoin is currently moving with an almost 60% correlation on indexes like the NASDAQ and S&P 500. At the same time, digital gold shows a negative correlation with physical gold.

After briefly dropping to $39,650, Bitcoin has recovered by more than 5%, resulting in growth back to $41,800. The short-term rally is currently looking for fuel to continue, but unfortunately for investors, Bitcoin is showing a completely neutral day with no losses or gains whatsoever.

article image
About the author

Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience.

Arman strongly believes that cryptocurrencies and the blockchain will be of constant use in the future. Currently, he focuses on news, articles with deep analysis of crypto projects and technical analysis of cryptocurrency trading pairs.