Does Crypto move with the stock market? I did a full analysis and the results are surprising.

We hear a lot about how bitcoin moves with the US Market so here I ran a detail analysis. Word of caution though, correlation does not imply causality so if two things correlating we can't say for sure if they are influencing each other or is there another hidden variable.

Method: I download all the data from Yahoo finance for Bitcoin, S&P500 and others. Included in the download was also ethereum, gold and VIX. VIX is the "fear index". The merged data starts from 2017-Nov so that is where we would start.

Results of correlation for the entire range

https://preview.redd.it/kskr569b8gi81.png?664&format=png&auto=webp&s=fd4d6b30a3b57c2e5cf9644c20968c5e42abdff9

each cells contains a correlation coefficient of the comparisons. A perfect correlation is 1, 0 is no correlation and -1 is anticorrelated, meaning if 1 goes up the other goes down.

• we see that S&P correlates very well with Nasdaq, at .9 which is almost perfect.
• S&P is anticorrelated with the fear index aka VIX and does not correlate with gold. Making gold a good hedge.
• However for the entire range, S&P only has a correlation of .23 with BTC. This is statistically significant but weaker than I would expect so I dug a little further and ran correlation for each year.

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https://preview.redd.it/coqcah739gi81.png?129&format=png&auto=webp&s=86e936c0d0cf346723b98e7b1ebbbc4ef3969db5

So as you can see the the correlation seems to be going up starting in 2020. There used to be no correlation but something happened around this time.

Next I ran a correlation month by month to detect any trends. And it was again surprising that the each month the correlation changes so drastically, with some months even in in the anti correlated portion, meaning BTC is moving in the opposite direction.

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https://preview.redd.it/m2scttpe9gi81.png?1456&format=png&auto=webp&s=7b14df097fab38a977248030a8588d1acc0d7569

Vertical dotted grey lines demarks years. Color green is when correlation > 0 and red < 0. The black horizontal lines is set to 0.

Summary.

1. The idea that BTC has increase in correlation recently is only partially true as you can see even in 2017 there were months with high correlations. Thus the correlation between BTC and the market seem to change on a monthly basis.
   1. Although on a global trend, the correlation is menacingly getting higher.
2. there were some months were BTC was actually anticorrelated - at this point then it would be a perfect hedge for the stock market. The lowest months were the following. Note that its usually in the summer time.

https://preview.redd.it/lajmfkh4agi81.png?253&format=png&auto=webp&s=a9946a9e27ea104823c2af5a3e53b425965c4295

Here are the months with the highest correlations and interestingly this is usually in the winter time. hmmm. interesting.

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https://preview.redd.it/h49cetvmhgi81.png?239&format=png&auto=webp&s=063c5d8577b40f17e45876224e8609d6db9c7128

TLDR: correlation of BTC with the market seem to change month by month and in some cases its even the opposite however year over year the correlation does seem to be going higher.