Bitcoin
Bitcoin’s Correlation With Tech Stocks Reaches Highest Level Since August
(Bloomberg) — Bitcoin was included in other speculative investments during the run-up to the Federal Reserve’s latest tightening cycle, falling on expectations that higher interest rates would reduce risk appetite. Now, with optimism growing again that borrowing costs could soon come down, supporters of the biggest cryptocurrency say it is looking more like high-growth assets like technology stocks.
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The token has been trading as such lately. The 90-day correlation coefficient of the digital currency and the tech-heavy Nasdaq 100 index reached 0.46 this week, the highest level since late August. A coefficient of 1 means the assets are moving in sync, while minus-1 would show they are moving in opposite directions. After the Fed began raising its target rate for overnight lending between banks in early 2022, the correlation jumped above 0.8, the highest since the digital asset burst into mainstream consciousness.
“People are refocusing on crypto as a growth asset or an asset that represents network value,” said Joshua Lim, co-founder of trading firm Arbelos Markets. “The ability of this as a technology and value transfer mechanism, and that means it will be more correlated with other assets that are also quite growing, like Nasdaq, technology stocks, that kind of thing.”
Bitcoin proponents have long touted the currency as an uncorrelated asset that is not beholden to any government and is unlikely to be influenced by outside forces or factors. When first introduced to the world in 2008 by an anonymous person — or group of people — known as Satoshi Nakamoto, the goal was to create a decentralized currency outside the control of governments and central banks. Over the years, it has been variously championed as a digital version of gold, a hedge against inflation, and a store of value. Bitcoin price volatility has undermined many of these narratives. The approval of US exchange-traded funds earlier this year to directly hold Bitcoin opened the token to new levels of investors.
“Since the beginning of 2024, you have seen the S&P 500 and Bitcoin correlated quite positively, which is unusual and completely undermines the theory that it is a store of value,” said Toby Winterflood, chief product officer at CCData . “I really think the main reason we’re seeing this hit its highs right now is the way ETFs have reached real maturity, being some of the fastest growing ETFs in history.”
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Bitcoin surged after the ETFs launched in January, reaching a record high of nearly $74,000 in March before paring gains as demand for the investment vehicles began to cool. The token rose about 1.4% on Friday to about $66,200 and is up nearly 10% this week. Bitcoin has jumped about 58% this year, compared to an 11% rise in the Nasdaq 100.
“These were a lot of motivators for traditional allocators outside of crypto to pay attention to the asset class and start buying it,” Lim said, referring to US ETFs, Bitcoin hitting its all-time high in March and its blockchain being halved in April. “Now that those catalysts are behind us, there is more focus on just the broader macro picture.”
Data released Wednesday showed that a measure of underlying U.S. inflation eased in April for the first time in six months, providing some progress in the direction Fed officials would like to see before cutting rates. The core consumer price index, which excludes food and energy costs, rose 0.3% from March after three months of higher-than-expected readings. Still, several Fed officials noted Thursday that the central bank should keep borrowing costs high for longer as policymakers await more evidence that inflation is slowing, suggesting they are in no rush to cut rates.
“If the Fed cuts rates, I think overall, that would be bullish for risk assets,” Lim said. “And that would be bullish for crypto as well.”
While more crypto investors have turned their attention to the Fed, CCData found that Bitcoin has remained fairly stable in its growth and resilience since the launch of US ETFs, Winterflood said.
“It will be interesting to see what happens” if the Fed cuts rates in the coming months, Winterflood said. “I wonder if Bitcoin will behave in the same way as before, with this type of asset being seen as more risky or if it will actually start to become just an alternative asset seen by traditional markets.”
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