WHAT IS CORRELATION AND WHY IS IT HIGHLY IMPORTANT?

Hey WEB3!

Today, I'll address an important topic. Let's get straight to our title!

WHAT IS CORRELATION AND WHY IS IT HIGHLY IMPORTANT?

The word correlation carries the meaning of "connection". Let's imagine the markets as the gears of a clock. The energy required for the clock to function is a cycle for us traders, and the market is essentially a cycle.

As the gears in the clock rotate, they move other gears, completing the temporal cycle. This is exactly what it means for markets to move in correlation with each other.

These movements can be in the same direction or in opposite directions.

But how do they move together? DXY, Gold, Stocks, the FED, interest rates, bonds, etc., may seem quite meaningless to external investors. Markets are not always in correlation with each other, but they are interconnected.

Therefore, it is essential to track these along with the #Bitcoin chart. The market forms within a cycle, and since money is not infinite, it shifts from one commodity, asset, or similar to another.

So, how is the cycle of this money determined?

First and foremost, what matters to us is the DOLLAR and the central bank. Because the dollar is the globally accepted currency, its significance is maintained through politics, technology, wars, and various other factors.

The #FED engages in asset buying and selling, adjusts interest balances, all for the benefit of the country. #DXY is an #index showing the strength of the dollar compared to all other assets and commodity products.

DXY is inversely related to Bitcoin in the #crypto market. If DXY rises, other assets (stocks, BTC) decline. Generally, in situations like war, high inflation, or situations leading to high inflation (such as pandemics, political instability, etc.), gold and commodities, considered safe havens by investors, gain strength.

This is because gold is not an infinitely producible asset but a mineral with limited extraction possibilities. As mentioned, there is an inverse relationship between DXY and gold.

Bitcoin, being a high-risk asset, despite its limited supply set by Satoshi Nakamoto and its production becoming increasingly difficult, faces significant selling pressure during extreme situations like war.

In such situations, while gold rises, BTC falls, and as the danger subsides, money starts flowing from gold to Bitcoin. In conditions where there is no risky environment due to inflation causing the dollar to decline, stocks and #BTC continue to rise faster than gold.

The average of the 500 most valuable companies in the U.S., the SP500 index (SPX), has a correlation with BTC. If SPX falls rapidly, BTC falls rapidly, and if SPX rises rapidly, BTC rises rapidly (usually). When there is an expectation that DXY will strengthen, people buy "Government Bonds."

Bonds come in 10-year and 30-year forms. If the strengthening of DXY is expected, the appreciation of 10-30 year bonds can be seen as confirmation of this. Expectations of a decline in non-dollar assets arise. Bonds = Dollar, while other assets like "commodities, BTC" are inversely correlated.

If you understand this relationship, you can make safer transactions by following Smart Money (Banks, funds, in other words, institutions).

NOTE: Considering the complexity and uncertainty in the markets, it is important to adopt a broad perspective and continuously follow up-to-date data when making investment decisions.

Thank you for reading this far. See you in the next topic!