The pair decided to study the correlation starting in November, around the time the crypto’s market cap exceeded $ 1 trillion. Citing a lack of sufficient daily data, they chose to analyze correlations based on hourly returns, comparing bitcoin BTCUSD,
+ 2.71%
with ES00 futures contracts traded continuously,
+ 0.20%
on the S&P 500 SPX,
+ 0.21%.

They found the correlation to be positive for every month since November, meaning bitcoin and stocks tend to move in the same direction. However, the correlation was “relatively weak” at 0.20.

Correlation measures the strength of a relationship between two assets. A positive correlation of 1.0 would mean that they are moving in the same direction at the same time, while a correlation of -1.0 would mean that they are also moving in opposite directions. A correlation of zero means that there is no statistical relationship.

Related: ‘The direction of the crypto market from here is completely dependent on the stock market,’ says digital asset mogul Barry Silbert

But things got more interesting when they tested whether the “extreme” moves in bitcoin’s fallout in the stock markets. After all, the pair noted, bitcoin is often viewed as a barometer of investor appetite for risky assets.

To do this, they focused on correlations during times when bitcoin’s hourly return was above 10% or below -10%. The data found four trading days – December 28, January 4, January 29, and May 19 – that met the criteria; the first three were positive, while on May 19 bitcoin fell sharply.

The following 60 hourly returns after each move showed a jump in correlation to 0.26 from 0.19 under normal trading conditions. In other words, the data suggests that broader equity sentiment may become more associated with bitcoin market sentiment after an unusually large move, they wrote.

Keywords: Carl Icahn says a lot of today’s cryptos ‘won’t survive’, but the asset ‘could be here to stay’

Analysts said other statistical tests were consistent with the finding that big moves in bitcoin were followed by above-normal market volatility.

Bitcoin has been under pressure this month, dropping more than 50% at one point from its all-time high above $ 60.00 and investors suspected that these moves had contributed to the weakness in stocks, by particularly actions related to technology. Bitcoin prices and shares have largely stabilized since then, with digital assets rising around 3% in the past 24 hours, changing hands above $ 38,000 in a recent action.

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Major stock indexes saw sideways trade, although the S&P 500 and the DJIA Dow Jones Industrial Average,
+ 0.02%
don’t stay away from all-time highs. The S&P 500 is up about 0.4% so far in May, while the Dow Jones is up 1.3%. The highly technological Nasdaq Composite COMP,
+ 0.64%
remains down 1.6%.

Meanwhile, some analysts fear that the recent volatility in bitcoin is yet another test of the crypto’s decline.

See: Crypto investor protection debate heats up, but lawmakers hope to allow buyers to ‘make dogecoin as they please’

SentimenTrader’s Jason Goepfert wrote in a note on Tuesday that bitcoin plunged below its 200-day moving average, ending its third longest run above the technical metric used as a guide to the long-term trend of active.

The drop contributed to one of the biggest spikes ever in a “synthetic” volatility index for bitcoin, he said, noting that “this type of volatility has had a negative history for bitcoin.”

Meanwhile, DBS analysts urged investors to remain vigilant.

“Given the recent tensions over bitcoin, market participants might be advised to keep an eye out for developments in this space as part of monitoring risk and sentiment,” they warned.

Also read: Bitcoin is not a currency or a financial asset, but ‘looks like a bubble’: Roubini