Bitcoin, Nasdaq and S&P 500 correlation

After a brief period of non-correlation between BTC, Nasdaq, and S&P 500, there is a return to similar movements in anticipation of the data on 10 November on the U.S. CPI and the US mid-term elections.

The correlation between Bitcoin, Nasdaq and the S&P 500

In recent weeks, the historical correlation between the major US market indexes and Bitcoin has faded, and it is precisely this paradox that has revived the rise of digital gold, which has bounced back above 21,000 by breaking through the infamous technical support.

FOMO has resumed traveling among investors and although for now, it is rather unwarranted because it is widely believed that the true bottom has not yet been touched and especially because it is statistically unlikely that everyone has bought already at the lows, it is a signal to keep an eye on nonetheless.

Yesterday, altcoins took the spotlight right over Bitcoin “stealing” some dominance from the more capitalized currency.

B2B registers an all time high, Ethereum regains volumes that exceed the average of the last period (lost after the Merge in favor of BTC) and reabsorbs all the reversal of the last few days and Solana grows in volumes in relation to the news that the digital currency has been chosen by Alphabet (Google) as the single service currency.

After rising in recent days, Bitcoin’s dominance is in a downtrend precisely because of the strength of capital-absorbing altcoins.

Meanwhile, the cryptocurrency market is slowly moving back to the trillion-dollar mark in total volumes, and this is also a very good sign from the point of view of sentiment, which is returning to positive.

Looking ahead, it is important to keep an eye on the inflation figure (CPI) coming out on 10 November 2022, which together with the outcome of the US mid-term elections may or may not give the market a positive direction.

In the meantime, digital gold breaks through the $21,000 support with liquidations in yesterday’s day amounting to $180 million, a respectable figure but nothing when compared to what happened last year where as a result of the loss in value there were five times as many short sales.

The market has priced in a lot of pessimism in this bear market and as soon as that breaks down it can lead to rapid positive changes, the jobs data that clash with the Fed’s restrictive moves has contributed to this recovery in altcoins, especially if on 10 November, when the CPI data comes out, these figures will turn positive, as it would mean that in December the Federal Reserve could choose to give more breathing room by opting for a softer increase in interest rates.

The current macroeconomic and geopolitical landscape

The macro data brings us back to reality and the market is not yet at the rebound point but some very good signs mean that the FOMO is rising and with it the values of many cryptocurrencies.

Cryptocurrencies have taken on more strength than the stock market, which closes above 3700 points (3770.55 basis points) for the Standard & Poor 500 with a +1.36%, the Nasdaq also rises with a +1.56% to 10857.03 and Wall Street is green.

The continuous search for the bottom always prompts a part of investors to invoke the inflated “Buy the dip”, especially in certain phases, which typically correspond to the beginning of the bear market and the exhaustion of the market’s patience as in this period, which in fact is marked by a pronounced desire for a change of pace. 

For a while, one forgets about the mantra until sentiment brings back the fateful phrase, and that is when the market low is often really recorded.

Of course, the bear market low is not determined by sentiment, or at least not entirely.

In short, once again the S&P 500 and Bitcoin share a common fate after a brief hiatus of a few weeks.

This, according to some, is also due to the fact that being the former the most important index of the world’s largest stock exchange (Wall Street) and the latter the most capitalized cryptocurrency, they act a bit as the head of the pack by recording the biggest losses in the bear phase and the biggest gallops in the bull phase. 

To this reading, however, there is lately a growing one that the two (BTC and S&P 500 but also the Nasdaq) will continue to be decorrelated and that this is just a tailspin of a fairly anomalous bear market, at least according to the statistics.

Conclusions

Michael Saylor points out in a tweet how Bitcoin is now much less volatile than the US index and this may be a sign of continuity in the decorrelation trend between the digital currency and the major US indices.

#Bitcoin is now less volatile than S&P 500 and Nasdaq. pic.twitter.com/7x2zaTmgKM

— Michael Saylor⚡️ (@saylor) November 6, 2022

If the scenario outlined is confirmed in the coming weeks we could see a still losing US market and a more solid Bitcoin, recovering a bit without screaming bull market but simply showing more strength.

This scenario is one of the most likely at the moment according to insiders and could find confirmation precisely because in the proximity of the US midterm elections, where we usually see a more or less sustained pump, different discourse regarding the cul CPI data that could act as a needle of the scales and push cryptocurrencies either down or in the green depending on the outcome.