Bitcoin Price Could Plunge With US Stock Market, Analysts Warn

KEY POINTS

The upcoming election is making the stock market volatile
The volatility of the stock market is getting transferred to Bitcoin because of their high correlation
Another asset with a high correlation with Bitcoin is gold

Bitcoin's high correlation with the U.S. stock market might prove costly for the benchmark cryptocurrency because of the uncertainty surrounding the upcoming presidential elections.

The period leading to the U.S. elections is volatile for the traditional markets. According to Weiss Ratings, an analytics firm, Bitcoin will experience high volatility due to its correlation with the stock market.

In a tweet, the company said the equities market has a lot of risks at the moment and it will transfer all that volatility to Bitcoin.

We’ve noticed a high correlation of #BTC to equity markets. This is bad, because currently – due to US election rapidly approaching - stock market has a lot of headline risk, and correlation transfers all that needless volatility to #Bitcoin.
— Weiss Crypto (@WeissCrypto) October 16, 2020

The stock market and Bitcoin may remain volatile until a winner is announced and they will adjust accordingly and eventually stabilize after that, Ethereum World News reported.

Bitcoin's correlation with the stock market has been observed ever since the March 2020 crash. With September being a weak month generally for the S&P 500, the same pattern was observed in Bitcoin. It fell from $12,000 on Sept. 1 to $10,145 on Sept. 3.

Some analysts, however, argued that while Bitcoin is highly correlated with traditional equities, it will not be the case forever. Billionaire hedge fund investor Michael Novogratz said a perfect illustration for this is that if the Nasdaq fell 5% on a given day, Bitcoin would fall lower, not higher.

Another asset with a high correlation with Bitcoin is gold. Both the benchmark cryptocurrency and the shiny metal's value are being driven by the "store of value" narrative. That means people turn to both assets during times of economic uncertainty and inflation because they tend to keep their values more than the dollar and even stocks.

On Sep. 20, the 60-day correlation between the two assets reached 0.5, a positive correlation which first began in July. This correlation led Bloomberg to say that Bitcoin would keep appreciating for the same reasons that had helped gold achieve its current price. These factors -- limited supply and store of value -- will persist especially during this period of unprecedented quantitative easing, Bloomberg researcher Mike McGlone said.