The correlation between the general movement of the crypto index and the US economic framework continues to evolve.

Introduction

Although the contrasts between the conventional financial framework and the innovative crypto-financial landscape that initiated the web 3.0 revolution are quite stark, we still grapple with a challenge that has worried original tech enthusiasts who utilized bitcoin for transactions involving anything from servers to phone jammers. The challenge lies in a decentralized, universally accessible system that still relies heavily on a centralized fiat economy, which is gradually losing relevance. Fundamentally, the links between these sectors are intensifying daily. The tricky part is the potential loss of distinct identity and control over a unique, independent, and secure haven, even as it opens the door to fresh opportunities and attracts significant new investments.

To grasp the significance of this ongoing transformation, let's take a closer look at how the interplay between Bitcoin—the primary crypto index—and the US financial landscape has progressed over the years.

Before 2015

Back in 2014, American entrepreneur Jess Powell tried to establish an account with approximately 30 different US banks for the emerging Kraken cryptocurrency exchange. Such platforms require banking services mainly to handle customer deposits that can be converted into cryptocurrency. Unfortunately, Powell faced obstacles in securing the necessary support from US banks, which led him to seek services from a German financial institution. link ].

The following statistics illustrate the dynamic between the S&P 500 and Bitcoin, demonstrating the intricate ties that have emerged.

• The correlation of closing prices during 2014 and 2015 stood at -0.289.
• For trading volumes in the same period, the correlation was registered at 0.217.
• Open price correlations for 2014 and 2015 came in at -0.278.

Up until 2015, the correlation between the S&P 500 and Bitcoin was largely negative, signifying the transition of upcoming market players moving into the crypto realm and the establishment of foundational protocols within the sector, or showing no connection at all. This trend was equally applicable to the NASDAQ market: projects In 2014 and 2015, the correlation of closing prices was noted at -0.330.

• Trading volumes during this timeframe showed a correlation of 0.272.

• Open price relationships for 2014 and 2015 also revealed a negative correlation of -0.317.

• Things started to shift in 2015, as weak ties began to form between the US markets and the blockchain domain:

The beginning of a relationship

The year kicked off with a shocking headline on January 5, when the Bitcoin exchange Bitstamp disclosed that it suffered a significant breach, losing nearly 19,000 BTC, equivalent to approximately $5.1 million at the time.

1. The very same January, Megabank participated in Coinbase's impressive $75 million funding round, escalating interest in the crypto sphere. link ]:

2. By March 2015, Blythe Masters, former CEO of JP Morgan, became the head of a Bitcoin trading platform called Digital Assets Holdings (DA). In an interview with the Wall Street Journal, she stated, “Digital Assets offers a groundbreaking technology platform that mitigates counterparty risks and transparency challenges that restrict the widespread adoption of blockchain technologies. The potential for reducing costs and risks in settlement processes is immense. link ]:

3. This announcement may have triggered a complex reversal in perceptions—a natural response since it was viewed both as a questionable move for Wall Street and as a vital advantage for blockchain innovations. No other news from that era would have spurred such a significant market reaction. link ]

Additional developments from that time signaled a logical connection between various markets:

NASDAQ disclosed research regarding the transformative potential of blockchain technology on share transactions and sales. It was the last major financial entity to show such interest, swiftly becoming a key player in generating public enthusiasm for its blockchain initiatives.

1. The New York State Department of Financial Services (NYDFS) finally released its long-awaited regulatory framework for digital currency businesses. This BitLicense followed nearly two years of investigation and discussions, arising from the belief that existing technology didn't fit current state legislation. link ]
2. On September 9, a startup called Chain announced it successfully raised $30 million from investors like Visa, Capital One, and Fiserv— a staggering amount that reflects the growing acknowledgment of blockchain's advantages. link ].

3. Around this time, blockchain shifted from just being a mechanism for settling adult entertainment debts to a newly formed decentralized financial system that both Wall Street and the US government could no longer overlook without imposing regulations. link ].

Despite low correlation metrics during this period, hinting at weak links between the markets, the connections were undeniably present. Moreover, as we will explore, these correlations would become more pronounced in subsequent years.

The correlation in closing prices between 2015 and 2016 registered at 0.102.

S&P 500 and BTC correlation indicators: 

• Meanwhile, the correlation in trading volumes for this period showed a figure of 0.075.

• An examination of open prices yielded a correlation of 0.120.

• At this juncture, Bitcoin exhibited a stronger correlation with NASDAQ than with the S&P 500, attributed to the news events previously mentioned:

In terms of closing prices between 2015 and 2016, the correlation peaked at 0.372.

• For trading volumes during this period, the correlation showed 0.087.

• The open price correlation was noted at 0.385.

• 2016 turned out to be tremendously beneficial for innovations in blockchain technology. The excitement surrounding it surged as major corporations funneled vast amounts into distributed ledger and blockchain solutions. Yet, a sense of frustration lingered as established cryptocurrencies like Bitcoin continued to grapple with challenges related to mainstream acceptance and intricate technical hurdles:

Important moments

Ethereum introduced its first live version in 2016 following the initial release, Frontier, in 2015. This launch was dubbed Homestead, drawing attention and enthusiasm from large corporations, further elevating Ethereum’s status as 'Bitcoin 2.0'. As a result, diversifying into crypto assets took on a significance akin to that of diversifying stock portfolios.

1. In August 2016, Bitfinex, a digital currency exchange, suffered a hack that resulted in the theft of 119,756 bitcoins valued at roughly $72 million— marking one of the most notorious hacks of the time.
2. Bitcoin’s halving event in 2016 didn’t attract much attention, yet the charts illustrated similar movements across both markets: link ]:

3. Around the same time, the infamous DAO attack occurred, with losses of $60 million in Ethereum.

4. By the end of 2016, the evident correlation between crypto markets and fiat currencies was hard to miss, especially as they reacted sharply to significant events in both arenas. link ]:

Refer to the following indicators for both the S&P 500 and Bitcoin:

The correlation in closing prices between 2016 and 2017 reached 0.801.

• For trading volumes, the correlation was negligible at -0.0008.

• Open price correlations registered at 0.806.

• Closing prices during the 2016 to 2017 period maintained a correlation of 0.794.

NASDAQ-BTC Correlation Metrics:

• Trading volumes showed a correlation of 0.050.

• And open price correlation during this timeframe peaked at 0.796.

• The year 2017 commenced with China's National Bank tightening its grip on the nation's dominant Bitcoin exchanges. This placed a dampening tone on the start of the year. However, even considering the US economy's dependency on China, this action didn’t produce the anticipated correlation effect.

Skyrocketing

In March 2017, the US Securities and Exchange Commission (SEC) turned down a request from investors Cameron and Tyler Winklevoss to create a Bitcoin exchange-traded fund (ETF). The market's reaction was negative, as many had speculated that the US regulatory body would approve rather than reject the ETF proposal.

The ensuing 'summer of the bulls' was driven by an optimistic market sentiment, where a favorable outlook in crypto was increasingly beginning to signify positive vibes in the stock markets, and vice versa: link ]:

By early September, Bitcoin's price surged beyond $5,000 for the first time before dipping hundreds of dollars just two days later. Indeed, during this period, there was a quick correction from the summer highs: Bitcoin's price fell below $3,400 by September 14 and dropped further to under $3,000 the very next day.

Bitcoin reached record prices during this time, correlating closely with movement in both NASDAQ and the S&P 500. link ]:

The overall correlations remained robust alongside NASDAQ, as seen in the following data:

The correlation in closing prices from 2017 to 2018 hit 0.817.

• Trading volumes remained low at 0.030.
• Open prices between 2017 and 2018 registered a correlation of 0.815.
• Closing prices for the same period peaked at 0.871.

… and in the S&P 500:

• The correlation in trading volumes from 2017 to 2018 was at 0.111.
• The open price correlation reached 0.871 between 2017 and 2018.
• The year 2018 provided a fascinating look at the interplay between US monetary policy and Bitcoin, marking the first time since 2015 that the correlation between the Federal Funds Rate and Bitcoin shifted:

Decisive turning point

From January 1, 2015, to January 1, 2016, the correlation between Bitcoin's closing price and the US Fed Funds Rate was recorded at 0.549. economy and crypto From January 1, 2016, to January 1, 2017, the correlation shifted to 0.641.

• Finally, from January 1, 2017, to January 1, 2018, the correlation climbed further to 0.684.
• The connection between the overall crypto index trend and the performance of the US economy is increasingly apparent, as discussed in Metaverse Post.
• Introduction: While there are glaring contrasts between the established financial framework and the nascent crypto-centric financial ecosystem that marks the onset of Web 3.0,

The growing link between the development of the crypto index and the dynamics of the US economy is noteworthy.

1. S&P 500:

• The FTC's attempts to resist the Microsoft-Activision merger have hit a wall, as their appeal has been dismissed.
• Published on July 22, 2022, at 3:40 AM, with updates following at 4:01 AM the same day.
• In order to enhance your experience in your native language, we sometimes make use of an automatic translation feature. However, please keep in mind that this translation may not be entirely accurate, so make sure to read carefully.

2. NASDAQ:

• Though there are evident disparities between the conventional financial landscape and the innovative crypto-financial ecosystem that triggered the transformation into Web 3.0, a challenge emerges that echoes concerns from the early crypto enthusiasts. They initially started using bitcoin for transactions ranging from servers to mobile phone jammers. The challenge lies in a decentralized and universally accessible system that still hinges on a centralized fiat economy—one that is progressively losing relevance. Each day, the interplay between these sectors intensifies. The tricky aspect is balancing the quest for a unique, independent, and secure financial haven while simultaneously seizing new opportunities and drawing in fresh capital.
• To grasp the significance of this evolving relationship, it’s essential to track the journey that led to the current connection between bitcoin, the leading crypto index, and the broader US financial landscape.
• Back in 2014, Jess Powell, a forward-thinking American entrepreneur, reached out to about 30 banks in the US in his bid to establish an account for the newly minted Kraken cryptocurrency exchange. This type of exchange requires banking relationships primarily to process cash transfers and checks from clients, which are later converted into virtual currency. Regrettably, Powell didn’t secure the necessary support from American financial institutions, prompting him to turn to a bank located in Germany for assistance.

The statistics presented below highlight a correlation between the S&P 500 and BTC, alongside several notable news items from above.

During the period from 2014 to 2015, the correlation in closing prices was recorded at -0.2893.

[ link ]

In terms of trading volumes, that same timeframe exhibited a correlation of 0.2175.

For the opening prices between 2014 and 2015, a correlation of -0.2776 was noted.

Before 2015, there was a negative correlation between the S&P 500 and Bitcoin, indicating a shift of market mavericks from traditional finance to the realm of crypto—this gave rise to foundational protocols and frameworks within the burgeoning crypto sector, or there was simply no correlation. This pattern held true for NASDAQ as well: link ]

The correlation in closing prices from 2014 to 2015 showed -0.3304.

Back to the correlation

When analyzing volume correlations for 2014 to 2015, we find a figure of 0.2720.

1. The opening price correlations during the same span also reflected a negative -0.3174. link ].
2. The latter part of 2015 marked a transition as the relationship dynamics began to shift. Emerging correlations became apparent between established US market structures and the evolving blockchain environment: link ].
3. Gold is up 17% since December 31^st [ link ].
4. Shockingly, on January 5, 2015, bitcoin exchange Bitstamp made headlines by announcing it had fallen victim to a major security breach that resulted in the loss of roughly 19,000 BTC, valued at $5.1 million at that time. link ].

Later that same month, Megabank took part in a landmark $75 million funding round for Coinbase. US stock market In March 2015, Blythe Masters, the former CEO of JP Morgan, took the reins at Digital Assets Holdings (DA), a platform dedicated to bitcoin trading. In her interview with the Wall Street Journal, Masters emphasized, \"Digital Assets has a groundbreaking technological foundation that addresses the counterparty risks and transparency issues that currently hinder widespread acceptance of cryptography-based solutions. The potential to lower costs and mitigate risks in transactions is immense.\"

2019 S&P 500 Correlation Metrics:

• This news may have triggered a multifaceted shift—a reaction that was hardly surprising, as it reflected both skepticism from Wall Street and significant advantages for blockchain solutions. Indeed, there wasn't any other newsworthy event during that time that would have generated such a synchronized market response.

• There were also other concurrent developments that illustrated a logical connection between the traditional and digital markets:

• The NASDAQ, a formidable figure in global finance, revealed its research on how blockchain technology could revolutionize the processes of share trading and transfers. Although it was among the last of the major financial entities to express interest, it quickly became a leader in developing blockchain research and technology.

According to NASDAQ:

• Over in New York, the Department of Financial Services (NYDFS) released a much-anticipated regulatory framework aimed at digital currency enterprises. The BitLicense, which emerged after two years of comprehensive analysis and discussion, underscored the commitment of NYDFS to establish rules tailored to modern technology, rather than attempting to apply existing legislation.

• On September 9, a startup named Chain declared it had garnered $30 million in funding from notable investors like Visa, Capital One, and Fiserv—this considerable influx of capital was a strong indicator of the increasing acknowledgment of blockchain technology's advantages.

• At this juncture, blockchain started its transformation from a niche used for trivial transactions, such as paying for adult content and gambling debts, into a decentralized financial system that both Wall Street and the government had to contend with, thereby necessitating regulatory oversight.

COVID-19 break

While correlation indicators from this era were minimal, suggesting limited interactions between the traditional and crypto markets, they were definitely present. Moreover, as will be demonstrated in subsequent analyses, these indicators became increasingly significant in the years that followed.

The correlation of closing prices from 2015 to 2016 came in at 0.1028.

S&P 500 and bitcoin:

• Trading volume showed a correlation of 0.0749 during the same timeframe.
• For opening prices in 2015 to 2016, the correlation stood at 0.1196.
• Notably, at this stage, the correlation between Bitcoin and the NASDAQ appeared to be stronger compared to the S&P 500. This shift can largely be attributed to the significant developments outlined earlier:

NASDAQ and bitcoin:

• The correlation of closing prices for Bitcoin and NASDAQ between 2015 and 2016 was measured at 0.3720.
• In terms of trading volumes from 2015 to 2016, the correlation was recorded at 0.0872.
• For opening prices over that period, the correlation reached 0.3855.

The year 2016 unfolded as a remarkably fortuitous time for blockchain innovation. The enthusiasm only intensified as major corporations began pouring investments into distributed ledger and blockchain technologies. At the same time, there was a growing frustration as established cryptocurrencies—particularly Bitcoin—struggled to gain mainstream traction while grappling with intricate technical hurdles.

The Ethereum blockchain initiative embarked on a journey of its own, achieving a significant milestone with the release of its first production version in March. Following the first version, dubbed Frontier, launched in 2015, Ethereum’s Homestead version gained traction, leading prominent companies to refer to it as \"Bitcoin 2.0,\" showcasing rare excitement for its potential. Consequently, diversifying into crypto assets gained equal importance as diversifying stock portfolios. link ]

2021: NFT and many other crypto booms

In August 2016, the online exchange Bitfinex suffered a major breach, marking the second-largest hack in Bitcoin's history, with 119,756 bitcoins—valued at around $72 million at that time—being stolen.

• Interestingly, Bitcoin's halving in 2016 did not seem to create significant ripples in the markets, yet charts revealed a parallel in market movements across both sectors.

• Then came the DAO incident, which culminated in the theft of $60 million worth of Ethereum.

By 2016, the apparent correlation linking cryptocurrencies and fiat currencies became undeniable, exhibiting pronounced reactions to pivotal events across both markets.

• Observe the following indicators for BTC and the S&P 500:
• Closing prices from 2016 to 2017 reflected a strong correlation of 0.8014.

For trading volumes in the same period, the correlation was a minuscule -0.0008. link ].

In terms of opening prices from 2016 to 2017, the correlation stood at 0.8062.

The closing prices for that interval were correlated at 0.7945.

In terms of volume correlations during that same timeframe, the record registered 0.0500.

1. Upon examining the opening prices again, the correlation was noted at 0.7963.
2. The year 2017 kicked off with the Chinese National Bank enforcing stricter regulations on the country's dominant bitcoin exchanges. It was a disappointing way to start the year. However, even despite the US economy's significant interconnection with China, this event failed to generate the anticipated market correlation.

March 2017 saw a noteworthy decision when the US Securities and Exchange Commission (SEC) rejected a proposal for a bitcoin exchange-traded fund put forth by investors Cameron and Tyler Winklevoss. This decision resulted in a negative response from the markets, as many were confident that the regulatory body would opt for approval rather than denial of the proposed ETF.

Between the S&P 500 and Bitcoin:

• The so-called 'summer of the bulls' followed, characterized by a buoyant market atmosphere. It's vital to recognize that by this point, a positive sentiment in the crypto realm translated into favorable conditions in the stock market—and vice versa.
• "By the first week of September, Bitcoin achieved a historic milestone, seeing its price surpass the $5,000 mark for the very first time, only to drop by several hundred dollars just two days later. Indeed, during this time, the market corrected itself after the impressive gains seen during the close of summer, with Bitcoin's price plummeting below $3,400 on September 14, and dipping even further to just over $3,000 the day after.\"
• At this juncture, Bitcoin's pricing established new records, which closely echoed movements in both the NASDAQ and S&P 500.

Between NASDAQ and Bitcoin:

• Overall, correlations remained robust, particularly with NASDAQ:
• The correlation of closing prices from 2017 to 2018 was measured at 0.8167.
• The correlation shown for trading volumes in the same span stood at 0.0303.

Opening price correlations between 2017 and 2018 recorded 0.8152.

• Additionally, closing prices for that timeframe displayed a correlation of 0.8705.

To sum up…

In terms of volume correlations during that same period, the figure reached 0.1107.

• 2016–2017 value is 0.79 (NASDAQ and S&P 500 average),
• 2017–2018 value is 0.84 (NASDAQ and S&P 500 average),
• 2018–2019 value is 0.04 (NASDAQ and S&P 500 average),
• 2019–2020 value is 0.54 (NASDAQ and S&P 500 average),
• 2020–2021 value is 0.80 (NASDAQ and S&P 500 average),
• 2021–2022 value is 0.28 (NASDAQ and S&P 500 average),
• 2022 value is 0.91 (NASDAQ and S&P 500 average).

For opening prices again, the correlation came to 0.8713.

The year 2018 turned out to be an intriguing period for analyzing the dynamic between the US economy and cryptocurrency markets. Particularly noteworthy was the first reversal since 2015 in the correlation between the US Fed Funds Rate and Bitcoin.

From January 1, 2015, to January 1, 2016, the correlation between Bitcoin's closing prices and the US Fed Funds Rate was recorded at 0.5488.

From January 1, 2016, to January 1, 2017, the correlation showed a significant rise to 0.6408.

Read related articles:

• From January 1, 2017, to January 1, 2018, the correlation with Bitcoin closed at an even higher level of 0.6837.
• Blockchain Economy
• The dynamic connection between the overall crypto index trends and the United States economy, as discussed by Metaverse Post.
• Overview: Even though the traditional financial landscape appears markedly different from the emerging world of cryptocurrency, which heralded the dawn of Web 3.0, we encounter a challenging paradox reminiscent of early tech enthusiasts. These pioneers utilized Bitcoin for various transactions ranging from servers to less conventional items like mobile jammers. The dilemma arises from a decentralized ecosystem striving for autonomy yet remaining tethered to a centralized fiat-based economy that is gradually becoming outdated. This interrelation is becoming increasingly pronounced, highlighting a struggle to maintain the identity and independence of a secure financial refuge while simultaneously attracting fresh investments and opportunities.
• The connection between the mainstream crypto index, particularly Bitcoin, and the financial landscape in the US is worth exploring to grasp its significance fully.