Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge. When he's not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.
Both Bitcoin and the S&P 500 seem to have some correlation, very apparent as 2022’s first quarter concludes with both closing down.
According to charting platform TradingView, the latest correlation between the index and BTC, which appears to be cyclical, is 0.9. From a technical perspective, 1 represents perfect correlation, while -1 means a perfect inverse.
From a practical standpoint, the identified 0.9 correlation is highly evident in the conclusion of the first quarter of 2022. The S&P 500, Wall Street’s benchmark equity index, closed out Q1 down 5.5%. It was closely followed by BTC, which closed out for the same period down 2%. The prominent digital currency previously skirted around the $48K earlier in the week, but has since declined to below $45K to end it.
Bitcoin on Course to Consistently Outpace S&P 500 on a Proportional Basis
Given the current nature of the BTC-S&P 500 correlation, Bitcoin’s losses will most likely outpace that of the stock market. Conversely, a fast rebound of BTC is also highly likely to outpace the S&P 500. This is due to the 24/7 characteristic of the digital asset.
Bitcoin had an inauspicious start to the year, one of its worst ever. However, the leading digital currency ended up making amends last month. Throughout March, BTC gained approximately 9%, which occasionally outperformed US stocks. In addition, BTC’s March gains erased and reversed the losses incurred earlier in 2022, restoring the coin to parity.
Altcoins Also Shine in March
Despite the positive optics for BTC’s price at the end of March, several layer-1 tokens like Solana, Terra, AVAX, and Cardano did even better. These emerging altcoins were able to outperform Bitcoin during the same period with double-digit gains. According to some analysts, most of these gains were induced by high Ethereum 2.0 anticipation.
From a macroeconomic perspective, Michael Safai, managing partner at Dexterity Capital, offered another explanation. According to him, “tokens were freed again to move based on their merit, rather than the risk-off attitude that tends to push all coins in the same direction.”
Also speaking on the overall general performance of digital currencies in March, Safai suggested that this was due to factor stability. The Dexterity Capital managing partner explained that the volatility as a result of macroeconomic and geopolitical uncertainty earlier in the month had pared down.
BTC: The Russian Outlook
On the Eastern European front, Russia has made an exception to its proposed payment denominator in order to supply oil and gas to Europe. According to the Eastern European powerhouse, only China and Turkey could pay for natural gas using BTC. However, Russia wants “unfriendly” countries to pay for commodities using rubles and gold, as a direct response to global sanctions. The country threatened to sabotage oil and gas supply if its payment specifications were ignored.
Russia is demanding the ruble as a payment denominator to boost the currency’s value. The ruble has been on a downward spiral since the first wave of sanctions hit.