The stock market took it on the chin today, but so far crypto has held up, will that continue?
If you recall back in March of this year, there was a massive sell off in the stock market.
This was 100% due to the global pandemic and the ensuing fear over what exactly was going to happen.
This sell off in stocks quickly bled over into crypto and pretty much everything else that wasn't nailed down.
Then, for weeks and months from that time, bitcoin and the stock market suddenly became highly correlated.
The interesting thing about that is prior to that drop, bitcoin had been mostly correlated to gold, though even then the correlation wasn't very strong.
However, after that major drop in March, bitcoin and stocks became highly correlation basically almost with a one to one correlation...
(Source: https://finance.yahoo.com/news/correlation-between-bitcoin-p500-nears-191031399.html)
Will history repeat?
Now, here we are months later and the correlations between bitcoin and stocks has mostly broken down.
Which is actually rather unfortunate for bitcoin because stocks went on to make new highs while bitcoin found major resistance in the $12k area, which is about 40% lower than its previous all time high.
The question then becomes what might happen if the stock market gets volatile again, since that seemed to be what sparked the correlations the last time?
Well, as you may or may not have heard by now the latest stimulus bill was shot down before it really even got off the ground.
There was a vote in the senate today where the coronavirus stimulus bill was voted against as both sides pretty much voted party lines.
While this shouldn't have been much of a surprise to anyone because the democrats had said the bill didn't go far enough and they would never pass it for weeks now etc...
Either way, the stock market still fell out of bed on this news, falling over 400 points today...
Which actually doesn't sound as bad as it was considering it was up by a couple hundred early in the morning.
The total decline from the highs today was much larger than the 400 points...
And as we can see now, the correlations between bitcoin and stocks are already starting to pick back up again:
What does this mean going forward?
Unfortunately, I think that if stocks fall out of bed over the coming weeks, and they might for a couple reasons...
One being that no new stimulus is coming anytime soon and two because we are weeks away from the most contentious election in modern history...
Well then I think there is a decent chance that the route in stocks spills over into crypto.
This line of thinking goes against most historical patterns for bitcoin as it relates to halving cycles and seasonal trends etc, but it's hard to argue the possibility.
Here's to hoping any selling in stocks is short lived, and if it's not that it doesn't spill over into the crypto market as well!
Stay informed my friends.
-Doc