As observers note growing similarities between Bitcoin’s movements and the S&P 500, it’s worth examining what might be tying these two markets together.
The S&P 500 is a stock market index that measures the market capitalization of major publicly traded companies. By tracking the risks and returns of these large firms, the S&P provides a broad snapshot of overall stock market performance.
Bitcoin has shown occasional correlations with the S&P 500 in the past, but during the COVID-19 crisis those parallels became far more apparent and consistent.
One likely explanation is that when billions of dollars are wiped out across multiple markets, investors sell assets across the board to raise liquidity or cover losses, and that can include selling Bitcoin. In such conditions, investors may conclude that Bitcoin is not the safe haven they had hoped for.
That said, crisis often prompts an initial wave of selling, and many economists believe Bitcoin could rebound strongly as markets recover. The period remains unsettling for those heavily invested in the original cryptocurrency. As the connection between the price of BTC and the S&P 500 persists, a sudden stock-market crash would likely have a severe impact on Bitcoin as well.
If large institutional investors showed more conviction in Bitcoin and held their positions, the apparent link between Bitcoin and the broader stock market might weaken. Unfortunately, despite Bitcoin’s decentralized design and limited supply, many still view it as a high-risk asset and liquidate holdings when global economies suffer.
Shedding speculative positions, however, can produce a healthier market over time. Short-term drops in Bitcoin’s price are worrying, but they also create buying opportunities. Even bearish analysts were surprised by the recent sharp decline, and that so-called “black swan” event highlighted an important point: Bitcoin had attracted significant attention from major financial institutions in recent years.
Many large holders who were not aligned with Bitcoin’s underlying philosophy likely exited at the first sign of trouble, while longer-term stakeholders who have researched the asset understand that short-term volatility is temporary. The fundamental attributes of this disruptive currency—scarcity and decentralization—remain unchanged.
Crypto advocates who believe Bitcoin represents a superior form of money view the correlation with the S&P as largely a short-term reaction to the coronavirus pandemic. These investors focus on the long term and expect meaningful price appreciation once the current crisis subsides.