Bitcoin continues to lose momentum on short timeframes as bulls were unable to follow yesterday’s bullish impulse. The cryptocurrency was rejected towards the middle of its current levels and could be linked to a retest of the local support.
At the time of writing, Bitcoin price is trading at $20,000 with a 1% loss and a 3% profit in the past 24 hours and 7 days, respectively. Despite its negative price performance, BTC remains relatively strong compared to other top 10 cryptocurrencies by market capitalization.
Bitcoin at Record Correlation with Gold and Stocks in 2022
Data from Kraken Intelligence shows that Bitcoin has increased its correlation with risky assets and with other traditional assets in the legacy financial market. This phenomenon has been common in 2022, as global markets move in tandem in reaction to the US Federal Reserve (Fed).
The financial institution tried to slow down the inflation of the US dollar by raising interest rates. This had negative consequences on all asset classes.
As shown in the charts below, the price of Bitcoin has seen its correlation decline with the major stock indices, the Nasdaq 100 and the S&P 500. Over the past few months, this correlation was at its lowest below 0, 5 but approaches high correlation levels. at about 0.8 and 0.74, respectively.
Something similar happens with gold and US Treasuries. Unlike stocks, Bitcoin has been less correlated to the precious metal and US Treasuries, but that appears to be changing in light of increased economic uncertainty.
Earnings Seasons Could Cap Bitcoin’s Bullish Momentum
This data suggests that Bitcoin may be increasingly sensitive to events related to stocks and major indices. Jurrien Timmer, Macro Director for the investment company Fidelity, believes the upcoming earnings season could bring headwinds for traditional assets.
Timmer supports his theory on the recent rally in the US dollar, as measured by the DXY index. This tool allows market participants to get an idea of the strength of the dollar against mainly the Japanese yen, the British pound and the euro.
We see the same disconnect in the chart below, when comparing the rate of change of the dollar to the expected growth rate of EPS (NTM divided by LTM). Estimates should drop faster, it seems. /4 pic.twitter.com/G49jAMu0Y0
— Jurrien Timmer (@TimmerFidelity) October 6, 2022
The higher the DXY Index, the weaker these other currencies, and other risky assets by extension, like Bitcoin, are. Timmer says 40% of S&P revenue comes from overseas, which could have a noticeable negative impact on US corporate profit margins and earnings. The expert wrote:
Revenue growth is expected to fall to 4% and stay there. Given that the DXY rate of change is +19%, this seems too high. So, based on the dollar and the breadth of the market, we could have some negative earnings surprises.