Crypto – Politics – Feds – Oh My!

Big Meeting Later Today

The Federal Open Market Committee or the FOMC holds meetings roughly every six weeks.  They discuss monetary policy changes, review economic and financial conditions and assess price stability and employment output.  This seems like a big deal and guess what, it is.  

The thing about the Fed is their news can shake an entire market.  Investors listen very carefully to what the Fed says because one small change in monetary policy can send shockwaves throughout the entire traditional market.  

YAHOO

MARKETWATCH

REUTERS

CNBC

—These are just a few of the headlines going around this morning and as of this writing… the market isn’t even open yet.—

The Correlation Killer

So, why is this such a big deal?  The answer is correlation.  Specifically, the correlation that Bitcoin has to the Traditional Market.  Even more specifically, the correlation Bitcoin price Action has to the S&P 500 Index.  

We talk about Correlation once a week after the Weekly Candle Close but we are always talking Crypto to Crypto correlation.  Now we are talking about the Traditional Market and how it can affect Bitcoin – which in turn can affect the entire Crypto Market.  

As we can see above – the overall price action is somewhat correlated but of course, it’s not exact hour to hour.  We also need to keep in mind that Bitcoin trades 24/7 while S&P only trades 5 days a week, from 9:30 AM – 4 PM.  We will see many more hourly candles in the Bitcoin chart then we do on the S&P 500 chart.

We will also notice areas of Negative Correlation.  This essentially means that the price action from one asset to the other is inverted or opposite.  Here, we can see the same period of days and what happened to each Bitcoin and the S&P within those days.  For 12 days, Bitcoin was trending down consistently on the hourly chart for Bitcoin but within that same 12-day period the S&P 500 was on the rise.  

As we get into the more recent price action we can see that once again, Bitcoin has been trending down while the S&P 500 was trading inside of a range only to just recently lose it completely and fill the recent gap.  This is also the trading period after the massive weekend selloff that Bitcoin saw that the S&P 500 was impervious to.  

In this last picture we can see how similar Bitcoin and the S&P 500 trade over this particular stretch in time.  We know they fall out of sync from time to time and that is actually a very good thing.  The most recent action has Bitcoin and the S&P a bit at odds with each other but the similarities between the two recent highs and the selloff are too similar to ignore.  

Bitcoin has a chance this time around to actually be considered a safe haven or a store of value.  This is similar to what investors think about GOLD.  When the market is in turmoil, investors flock to GOLD – this artificially raises the price of GOLD while the rest of the market will crash.  Outside of GOLD, Bonds are the other option when it comes to investors running from the market.  For the first time in the history of Trading, Bitcoin is now more readily available to big investors than it ever was before.  

Bitcoin will eventually get a test from the Traditional Market.  Bitcoin will eventually spar with GOLD to become the place to put your money while the Traditional Market sells off.  If Bitcoin is to succeed then it would need to be fully decoupled from the S&P 500 and they would need to have a negative correlation.  As Always – Time Will Tell.

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