Mid-December Bitcoin started rising to its all-time new high of $20,000 when a few days later the U.S stock market too started rising. Then was the fall, where Bitcoin fell to $6,000 when the Dow Jones also saw its biggest drop in history on Monday and S&P also the worst day since 2011.
According to the past data, there is a correlation between Cryptocurrency and stock markets…and this can help predict future outcomes. However certain experts suggest there is no correlation.
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The stock according to John F. Wasik a behavioral finance expert in Forbes suggests that the stock market was overpriced, and volatility has returned. He also adds that interest rate is rising and hence why the stock is playing as it is.
As for Bitcoin, it fell almost by 70% due to the damaging reports which were all biased and incorrect. Mostly about policies being reversed to ban Bitcoin which never took place. This clarifies from experts that there is no relation between Stock and Cryptocurrencies.
However, graphs suggest otherwise. Taking into aspects known to econometrics and statisticians, z scores and p scores will help determine the correlation. There was a higher absolute z score meaning higher correlation.
However certain experts such as Tom Lee suggest it is only a limited correlation and won’t be seen more in the future. Reason being the same investors involved in the stock market also bought or sold cryptocurrencies.
Analysts at Datatrek stated, “Since investors have only one brain to process risk, they will make similar decisions about cryptocurrencies and stocks when they see price volatility in the latter.”