- A correlation of 0.75 indicates a strong relationship in direct proportion
- The correlation between the two reached 0.8 during the bear market of 2022
The correlation between Bitcoin and the Nasdaq Composite Index currently stands at zero. The two were correlated over the past four years.
The decoupling of the tech-focused equity index and Bitcoin shows there is no longer any connection between the asset classes, data from research firm Fairlead Strategies show, cited by CoinDesk.
The Nasdaq Composite Index is a stock market index that includes all the common stocks and similar securities listed on the Nasdaq Stock Market. It is often used as a benchmark for the performance of the technology and growth sectors. The index is market-capitalization-weighted, meaning that larger companies have a more significant impact on its value.
What is correlation?
Correlation shows a relationship between two entities. Its value is calculated using a mathematical formula and is based on price movements, in this case value changes of Bitcoin and the index. 100% correlation is indicated by a value of 1.0. A correlation of 0.75 indicates a strong relationship in direct proportion, and a correlation of -0.75 would indicate a strong negative (inversely proportional) relationship.
A correlation of around 0.5 indicates a mild positive relationship where two assets move in the same direction.
Why the decoupling?
The correlation between the two assets had been consistently positive for four years, reaching 0.8 during the bear market of 2022. This development is accounted for by the expectations for the first spot Bitcoin ETF in the US and, to a lesser extent, the upcoming Bitcoin halving. The US SEC must decide on around ten ETF applications by tomorrow, January 10. The impact of this decision is likely to be strong on all markets.
According to a representative of Fairlead Strategies, the flagship crypto will remain agnostic to the composite index for a while. They told CoinDesk that they believed correlations for Bitcoin and Nasdaq would probably remain statistically insignificant in the next few months.
