A correlation that cannot be ignored

The correlation between the stock and crypto markets is due to two factors: first, many investors who previously invested in stocks are beginning to invest in cryptocurrencies to diversify their risks. Second, both stocks and cryptocurrencies are high-risk assets, so investor behavior toward them is often similar. This correlation is especially evident during times of economic instability.

How and why do movements in the stock market affect the cryptocurrency market?

Analysts first noticed a correlation between Bitcoin and major stock indices such as the S&P 500, Nasdaq, and Dow Jones in 2018. Although it was not as strong as today, it was already noticeable.

Later, in 2020, during the peak of the COVID-19 pandemic, attention was drawn to the strong correlation between movements in the stock and cryptocurrency markets. Research shows that the correlation between cryptocurrencies and stock indices grows strongest during economic crises.

For example, after the stock market crash following the WHO's official announcement of the pandemic in March 2020, the correlation between Bitcoin and the S&P 500 index sharply increased and reached 0.9. This means that the price movements of BTC, ETH, and the S&P 500 almost mirrored each other. Initially, the price of cryptocurrencies fell by 30–40%, then began to recover rapidly — faster than traditional assets.

Note: The correlation index ranges from -1 to 1. A negative value indicates an inverse correlation (i.e., moving in opposite directions). A positive correlation signals similarity in movement, and 0 indicates no correlation. The higher the value, the stronger the correlation.

Between 2023 and 2024, as the crypto market entered a new growth phase, the correlation between digital assets and stock indices decreased, although traditional assets showed steady growth.

However, due to its smaller capitalization, the crypto market's growth rate was significantly higher than that of the stock market. For example, in 2023, when inflation in the U.S. slowed to 4.9%, Bitcoin's price rose more than 59%, while the S&P 500 index increased only by 14%.

In the spring of 2025, amid aggressive trading policies of the 47th U.S. President Donald Trump, the stock market again showed a downturn, and the correlation between major indices and Bitcoin approached 0.9.

Economic factors influencing the crypto market from the traditional market

Historical events show that economic data from the U.S. market, such as inflation (mentioned above) and the Federal Reserve's key interest rate, strongly influence the cryptocurrency market.

Analysts have identified that Federal Reserve decisions regarding the key interest rate directly impact the crypto sector. For instance, in 2022, when the Fed raised the key rate to 4.5%, the price of the leading cryptocurrency fell from $48,000 to $16,000.

Another clear example is the Fed's reduction of the key rate by 50 basis points to 4.75–5.00%, which led to growth in both the stock and crypto markets. By the end of October that year, Bitcoin's price rose 24% — from $58,000 to $72,000.

This happens because, at high key interest rates, investors prefer less risky assets such as deposits, whose yields also rise, and gold and other precious metals.

However, when the key rate decreases, the yield of reliable instruments falls, so investors become willing to take risks by putting their money into higher-risk assets like stocks or cryptocurrencies. For example, in 2021, when Bitcoin and Ethereum reached their all-time highs (ATH) at around $69,000 and $4,800 respectively, the Fed rate was close to zero.

The crypto market's connection with Institutional Investments

Institutional investments play a significant role in strengthening the link between the cryptocurrency and stock markets. Investments by influential companies like MicroStrategy, which holds more than half a million bitcoins, boost interest from major investors and other traditional sector companies. It's noteworthy that the stock price of Michael Saylor's company often moves in sync with Bitcoin's price.

Entry into the digital assets sector and the launch of crypto ETFs by major investment firms such as BlackRock, Grayscale, VanEck, and Franklin Templeton amplify this effect.

For example, in the second half of May 2025, Bitcoin-ETF inflows exceeded $2.3 billion in just one week. During the same period, Bitcoin's price again hit an all-time high, reaching $111,800.