Bit (BTC) and S&P 500 have shown correlated volatility at the beginning of 2025. Both of these assets have experienced a significant decline, with the correlation index remaining at a high level. How do experts explain this and what potential risks could it pose to the crypto market?
Here are the findings and observations from BeInCrypto on the expert opinions surrounding this issue.
Also Read: Experts Identify Macroeconomic Risks Facing the Crypto Market in 2025
Increased Correlation Between Bit and S&P 500
Bloomberg data shows that the correlation between Bit and S&P 500 has been positive since 2020 until now. Over the past 5 years, the positive correlation coefficient has been continuously maintained. Since the end of 2019, it seems that both of these assets have been impacted by the same macroeconomic factors in the post-Covid era.
By the beginning of 2025, the data shows a high correlation level, recorded at 0.483. This indicates that Bit is behaving like an asset that moves in the same direction as the S&P 500, reflecting the increasing alignment of Bit with broader market trends, particularly the influences of US monetary policy, geopolitical events, and changes in market sentiment.
Correlation index between Bit and S&P500. Source: Bloomberg.Mike McGlone, an analyst at Bloomberg, commented on the above correlation as follows:
"2025 may be the year when the fate of risk assets becomes more dependent on the volatility of cryptocurrencies like Bit. Donald Trump's shift from being an anti-crypto to a supporter may have made Bit a leading global macroeconomic indicator, trading 24/7." - Mike McGlone commented.
From a negative perspective, the higher the correlation, the more both will decline when the market is unfavorable. There are also observations from experts who are concerned about this scenario.
Bit and US Stocks Decline Sharply in Early 2025
In fact, from last December until now, the S&P 500 has declined 4.6% from 6,100 points to a low of 5,817 points, while Bit has dropped nearly 16% from $108,400 to a low of $91,260. Journalist Holger Zschaepitz explains the decline of the S&P 500 in early 2025 as due to a decrease in global liquidation. And this is the most compelling reason among many different explanations.
"It's a liquidity issue, really! This chart shows why stock performance has been a bit wobbly in recent weeks. Global money supply has contracted by $4.2 trillion." - Holger Zschaepitz explained.
S&P 500 and the volatility of global liquidation. Source: Bloomberg.Combined with the observation of the high correlation index between Bit and the S&P 500, Holger's explanation may also apply to Bit as the asset is becoming a "macroeconomic indicator" as Mike McGlone described.
Recently, macroeconomic analyst The Kobeissi Letter expressed concerns about the possibility of a "Volmageddon"-style market collapse similar to the event in February 2018. The arguments made by The Kobeissi Letter include: rising inflation, record levels of 0DTE (Zero Days to Expiration) options contracts, and a high 10-year bond yield. Additionally, this account also noted a recent increase in the Volatility Index (VIX) similar to the 2018 event, indicating higher market sensitivity.
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