June was a bad month for Bitcoin and the whole crypto market. A lot happened. Global Inflation crisis, 3AC bankruptcy, Celsius pausing withdrawals, and Bitcoin, yeah? It broke below 200-day WMA, the first monthly close below the line.
A post on Twitter by a long-term crypto analyst and former institutional investor with 25 years of experience in financial markets known as Plan B shared a chart that demonstrates a clear correlation between traditional investment asset classes and Bitcoin.
The chart portrays a relationship between S&P 500 and Bitcoin over a 10-year growth of both S&P 500 on the x-axis and Bitcoin on the y-axis.
It is in the stark observation that S&P 500's average prices have increased four times, jumping from around $1,000 to $4,000. At the same time, Bitcoin has increased roughly 1,000 times during the observed period – from $10 to $10,000.
Earlier in a June 11 tweet, Plan B, said a statement about Inflation being non-transitory but a monetary phenomenon and not a Putin-induced event.
The single cost of inflation is the credit of Central Banks printing their native currencies, degrading the intrinsic value of the 'money.'
Thus, the first place for Bitcoin to come into being was to confront inflation. Any arguments of it being transitory or induced by a country's president are forms of FUD.
Currently, the correlation between Bitcoin and S&P 500 is sitting above 0.9. At the same time, Bitcoin was considered a decoupled asset aside from the other asset classes of the world.
In high inflationary times like these, any asset with a high degree of risk gets correlated with other asset classes in some way or the other.
Some understand that Bitcoin could finally become negatively correlated to equities. This would suggest that it trades utterly opposite to the stock market. Since equities are down and economic conditions are not running for growth due to high inflation & interest rate hikes, retail investors are flocking away from equities and Bitcoin for protection.
Yet, given that the stock market generally goes up over time, surprisingly, Bitcoin investors wouldn't wish for negative correlations all the time, just during stock market downturns.
For the moment, investors should take the highly correlated trends to stocks as a skeptical approach as it is just a matter of time before Bitcoin returns to an uncorrelated trend.