- Bitcoin and the Nasdaq 100 index have a constructive correlation
- The 2 markets’ performances supply a approach to commerce Bitcoin
- Volatility is essential in deciphering the constructive correlation
Bitcoin and the cryptocurrency market gained in recognition in a comparatively brief interval. Since its delivery, Bitcoin has been adopted by institutional traders, making its value motion nearer to conventional markets.
As such, it positively correlates with the inventory market, significantly with the Nasdaq 100 index. As seen beneath, shopping for or promoting Bitcoin or shopping for or promoting the Nasdaq 100 index was principally the identical commerce within the final two years.
Nonetheless, such charts are deceptive. Whereas appropriate, the chart above ignores the elevated volatility within the cryptocurrency market, one which requires particular cash administration abilities from crypto retail merchants.
The constructive correlation suggests extra upside for Bitcoin
An fascinating perspective seems if we take into perspective the 2 markets’ volatility. The chart beneath reveals the final two years’ efficiency for each – Bitcoin delivered +242.42% whereas the Nasdaq 100 +41.89%.
BTCUSD chart by TradingView
Each performances are spectacular, particularly if we take into account the 2022 bear market. Bitcoin topped when the Nasdaq 100 index topped, after which the market collapsed as traders fled the tech sector and the cryptocurrency market.
Judging by the constructive correlation, one factor is bound – the nearer the 2 markets’ efficiency is, the extra interesting it’s to purchase Bitcoin. For the reason that finish of 2020, the hole between the 2 performances has by no means been so slender as in late 2022.
In different phrases, the rally seen within the first buying and selling weeks of 2023 mustn’t shock anybody, given the character of this correlation. Because the tech sector bounced from the lows, so did Bitcoin. Solely that Bitcoin’s rally outperformed the Nasdaq 100 index’s rally due to the traditionally larger volatility.
To sum up, such a chart is beneficial when buying and selling Bitcoin. The nearer the 2 performances are, the larger the case for getting Bitcoin.
Quite the opposite, as Bitcoin outperforms Nasdaq, the larger the case for promoting Bitcoin.