BTC & SPX Correlation & Bear Market Bottoms 📚
A small thread about what happened in 2018 and if the 2022 situation is similar. 👇
In 2018, BTC saw a strong ~30% rally from the lows but then stalled right when SPX bottomed.
After that, SPX slowly grinded up while BTC bled down for ~2 months.
This is why we see a negative correlation coefficient at the bottom.
SPX was going up while BTC was going down.
Two interesting points about the times when we hit a strong inverse correlation:
1. These levels tend to be in close proximity of a major pivot in the market. Both local highs/lows.
2. The correlation overall is growing stronger over time. Where previously price wasn't all that correlated the entire time, you can see that especially during 2022 the correlation coefficient has basically never gone negative until recently with the FTX collapse.
It does seem in history that the longer the correlation is inversed, the stronger the chance of a reversal from that trend. As in the end BTC always tends to follow SPX in the larger moves.
So now onto our current 2022 situation:
Let's hypothetically say this was the bottom on both SPX and BTC. Won't go and speculate on that, just assuming it for the sake of the comparison.
1. In 2018, BTC bottomed first. Today, that is not the case as we made new lows due to the FTX collapse. So this is not the same as in 2018.
Would this not have happened, BTC did make it's initial low in June while SPX did so in October of 2022.
2. We did see a strong inverse correlation just as in 2018. But in 2018 it was due to BTC initially going up as SPX was bottoming. After that, it was due to SPX grinding up and BTC bleeding down.
What we see here is it going negative due to BTC dumping as SPX is going up.
And as we speak the correlation has gone into the positive again after a month or so while in 2018 it was negative for about 3 months.
The question is, can we even expect prices to become inversely correlated for that long again? There has obviously been a growing correlation over time as the space has grown bigger and algorithms/wall street have gotten more involved.
So, is this comparable to 2018? I'd say not really. Not in regard to the correlation between SPX & BTC.
What we have seen, is a big inverse correlation due to the FTX collapse and these inverse correlations tend to mark important pivots over BTC's price history.
To me it makes sense that these levels tend to be located around local tops/bottoms as obviously BTC is either getting over extended or oversold for whatever reason during these times.
In the end we tend to see a reversion to the mean.
Keep in mind that these charts are all very high timeframe. Some of these things take weeks or months to play out and never mark perfect tops or bottoms.
I hope you found this interesting and wish you a great day ahead! 😄This post is based on this twitter thread.