Stock & Crypto Markets Plummeting Down. Any Correlation?

Stock & Crypto Markets Plummeting Down. Any Correlation?

Within the past days, both stock and crypto markets have been heading downwards. Both of them started showing some drastic trends on Friday, February 2 and continued playing out this week. Here’s whether there is any relationship between the two markets.

Stock Markets Sinking

CCN explains how the rates on stock markets correspond with the gyrations on the cyber money market.

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Analyzing the info, represented by Sifr Data, the expert points out that S&P 500 index has a “weak positive relationship” to Bitcoin, fundamentally, because of a z-score. This is a signed number of standard deviations, which represents the route and strength of the correlation between the two suites of data.

“A higher absolute z-score means greater correlation, while a lower absolute z-score means less of a correlation. Whether the number is positive or negative indicates whether the relationship is direct or inverse,” explained Sylvestre.

At the same time, as the author emphasizes, VIX’s z-score demonstrates a “moderate negative relationship.” It is important to mention that VIX index is the “fear-gauge,” mentioned above, and it represents the equity market’s unsteadiness. Sylvestre concludes that there is an opposed relation between VIX and BTC.

Therefore, should the fears in the market rise, bitcoin’s price will drop. But if the concerns plummet, bitcoin’s price will soar.

Correlation Examples

Interestingly, as Business Insider noted, money was piled into cyber assets at the time, when the traditional stock market was experiencing a sell-off on February 5.

The media outlet paid attention to an interesting peculiarity: as stock markets kept sinking on Monday, some investors poured some of their funds into alternative assets – virtual currencies.

In particular, on that day the stock market underwent severe casualties, whereas cyber assets saw slight increases in prices. About 3 PM ET the Dow Jones index was going through a nightmare 1,500 point sell-off. In the meantime, the total crypto market capitalization, as BI points out, started sweepingly going up. It went up from $310 billion to $335 billion by 4 PM ET.

At the very same moment, however, the ‘king’ of all cryptos bitcoin was falling by 14%, whereas its ‘little brother’ ether was climbing up by 12% and Ripple – by 11% up.

Notwithstanding the above, it is quite confusing to find a direct relationship between the gyrations on traditional and cyber assets markets, as there are a plethora of various factors that prompt drastic changes on both sides. And if in the conventional market those could be the changes on views of investors, a shift in tax policies in different countries, e.g., the US, and growing fears, the crypto market plummeting might be prompted by entirely different conditions.

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