There is an ironic humor in the fact that Bitcoin has sometimes been very closely correlated with traditional markets.
Bitcoiners generally prefer that BTC does not have a high correlation with traditional assets, such as stocks and bonds. After all, one of the fundamentals of the world’s largest cryptocurrency by market capitalization — $379 billion to date, according to CoinGecko — is that it bypasses traditional finance.
That’s why self-confessed Bitcoin fans like Gemini co-founder Cameron Winklevoss notice when it looks like BTC has stopped tracking stocks and bonds.
“Bitcoin has been remarkably resilient in recent weeks despite losing trillions of dollars on the exchange,” he said. tweeted earlier this week. “No idea if it’s the bottom but there was a curious decoupling.”
Bitcoin has been remarkably resilient in recent weeks despite the stock market losing billions of dollars. No idea if it’s the bottom but there was a curious decoupling. Are people starting to re-examine the “catastrophe insurance” thesis?
It is true that Bitcoin has recently outperformed stock indices, but analysts say there is false evidence that a real decoupling has occurred.
Compared to last week, Bitcoin is up 3% while the Nasdaq 100 and S&P 500 each lost 1%. In fact, this has been true for 90 days, according to data from blockchain analytics firm IntoTheBlock. Compared to three months ago, Bitcoin has gained 1% while the Nasdaq 100 has lost 3% and the S&P 500 has lost 4%.
Beyond that, compare the current market meltdown to a time before the Federal Reserve’s Federal Open Market Committee (FOMC) instituted historically high interest rate hikes three times in a row. , pushing borrowing rates to their highest since 2008.
Blockchain data platform owned by IntoTheBlock correlation matrix shows that Bitcoin is still quite closely correlated with the Nasdaq 100 and S&P 500, both at 0.7.
Calculating a correlation produces a value between -1, which would mean that the two elements being compared always move in opposite directions, or 1, which would mean that they always move in the same direction.
During the first week of September, the correlation between Bitcoin and the two stock indices was much higher, at 0.9.
“Correlations with equities have indeed fallen over the past few weeks, but still remain quite high,” said Lucas Outumuro, director of research at IntoTheBlock. Decrypt.
Even though the correlation has weakened over the past month, Outumuro said there was reason to believe it could rise again, citing “the risks of reduced liquidity due to rate hikes in interest and [quantitative easing] continue to pressure risky assets, including crypto.
The pseudonymous Twitter user “Unusual_Whales”, who runs the options data platform of the same name, also said Decrypt that it is too early to tell if Bitcoin price movements have ceased to reflect traditional markets.
“It may be a lag effect,” they said. “Hard to say given that the market itself has changed so much this week.”
That change came with the Bank of England announcing on Wednesday that it had started aggressively buying bonds to stabilize markets after the government’s economic plans pushed interest rates and the pound sterling to all-time highs. . since the 80s.
“The correlation between BTC and the S&P500 (SPY) has reached all-time highs since March 2022 as both markets were impacted by FED actions and other macro events,” Nate Maddrey, who leads research at Coin Metrics, Narrated Decrypt in an email.
“Historically, BTC has not been strongly correlated with the stock market, so it is always possible that the tides will start to turn back towards a lower correlation. But at this point, the data does not show a significant detachment.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.
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