Bitcoin and NDX/SPX Ratio Show Increased Positive Correlation

04/06/2023 10:49 • Daily Digest • 58 views

According to reports, the 90 day correlation coefficient between Bitcoin and the NDX/SPX ratio increased from 0.81 to 0.90, marking the strongest positive correlation between these two assets since June 2022. As of the time of publication, the correlation coefficient was 0.89. A positive correlation means that on days of rising ratios, Bitcoin is more likely to develop synchronously, and vice versa.

Viewpoint: The close correlation between Bitcoin and technology stocks weakens its “safe haven asset” narrative

Introduction

In recent years, Bitcoin has emerged as a popular investment option for many investors. The cryptocurrency market has experienced a huge surge in demand, and it is attracting more people towards investment opportunities. However, Bitcoin’s volatility can cause some investors to hesitate. In this article, we’ll examine how the correlation between Bitcoin and the NDX/SPX ratio has changed and what it means for investors.

Correlation Coefficient Between Bitcoin and NDX/SPX Ratio

The latest reports suggest that the correlation coefficient between Bitcoin and the NDX/SPX ratio has increased from 0.81 to 0.90. It is the strongest positive correlation observed between these two assets since June 2022. As of the time of publication, the correlation coefficient is 0.89.
For those who are unfamiliar, correlation coefficient is used to measure the strength and direction of the relationship between two variables. A correlation coefficient of +1 shows that variables have a perfect positive correlation, and -1 shows that they have a perfect negative correlation. In this case, the correlation coefficient of 0.89 shows a strong positive correlation.

What Does It Mean for Bitcoin Investors?

So, what does a positive correlation mean for Bitcoin investors? According to the reports, when the NDX/SPX ratio is rising, Bitcoin is more likely to move in a similar pattern. The same goes for when the ratio is declining, as Bitcoin is more likely to decrease in value too. Essentially, Bitcoin prices appear to be affected by changes in the stock market.
Investors who are considering investment in Bitcoin now have an additional factor to consider. It means that if they invest in Bitcoin, they may minimize the diversification benefits that ordinarily come with it by creating a more concentrated stock portfolio.

Impact on the Stock Market

The increased positive correlation between Bitcoin and the NDX/SPX ratio can have significant consequences for the stock market. It means that fluctuations in the stock market can have direct effects on Bitcoin prices which can be either good or bad news for investors on either side.

Conclusion

In summary, Bitcoin’s positive correlation with the NDX/SPX ratio highlights that the digital currency is becoming more mainstream, and it has started to gain attention from investors worldwide. Even though Bitcoin is a popular investment option, it’s important to remember that its volatility and price instability can affect the value of the portfolio.

FAQs

1. What is the NDX/SPX ratio?
The NDX/SPX ratio is a technical indicator that shows the performance of the Nasdaq 100 Index compared to the S&P 500 Index.
2. What is a correlation coefficient?
A correlation coefficient is a statistical measure of the degree to which two variables are related.
3. How can I invest in Bitcoin?
There are numerous ways to invest in Bitcoin, including buying it directly or investing in a Bitcoin exchange-traded fund (ETF).

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