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The correlation between Bitcoin and the stock market has weakened over the past few weeks. But has she uncoupled? Here’s what the experts have to say.
Is Bitcoin decoupled from stocks?
It is ironic that at times bitcoin is very closely related to traditional markets. Bitcoin supporters generally prefer that BTC does not have a high correlation with traditional assets like stocks and bonds.
After all, one of the main tenets of the world’s largest cryptocurrency by market cap — $379 billion at the time of writing, according to CoinGecko — is that it eschews traditional finance.
That’s why self-confessed bitcoin fans like Gemini co-founder Cameron Winklevoss notice when bitcoin gives the impression that it’s no longer following stocks and bonds. Cameron Winklevoss on Twitter:
“Bitcoin has shown amazing resilience over the past few weeks even as the stock market has lost a trillion in value. I don’t know if that’s the bottom line, but there was a weird disconnect.”
Bitcoin has been remarkably resilient in recent weeks despite the stock market losing trillions in value. No idea if this is the bottom but there has been a strange disconnect. Are people starting to re-examine the “disaster insurance” thesis?
— Cameron Winklevoss (@cameron) September 27, 2022
Bitcoin has been remarkably stable for weeks
It is true that bitcoin has recently outperformed the stock market indices. However, analysts say signs that true decoupling has occurred may be misleading.
Compared to last week, Bitcoin is up 3% while the Nasdaq 100 and S&P 500 are each down 1%. According to data from blockchain analytics company IntoTheBlock, this has been true even for the past 90 days. Compared to three months ago, Bitcoin is up 1% while the Nasdaq 100 is down 3% and the S&P 500 is down 4%.
Additionally, the current market downturn must be compared to the time before the US Federal Reserve’s Federal Open Market Committee (FOMC) made three successive hikes to historically high interest rates and that they pushed lending rates to their highest levels since 2008.
Blockchain data platform IntoTheBlock’s own correlation matrix shows that Bitcoin remains closely correlated with the Nasdaq 100 and S&P 500 – both at 0.7.
A correlation calculation gives a value between -1. That would mean that the two things being compared are always moving in opposite directions. 1, on the other hand, which means they are always moving in the same direction.
In the first week of September, the correlation between Bitcoin and the two stock indices was much higher at 0.9.
Correlation falling but staying high
Lucas Outumuro, Head of Research at IntoTheBlock:
“Correlations with equities, although falling over the last few weeks, are still quite high.”
According to Outumuro, although the correlation has weakened over the past month, there is reason to believe it could pick up again given “the risks of reduced liquidity due to interest rate increases and [quantitativer Lockerung] continue to pressure risky assets, including crypto.”
The pseudonymous Twitter user “Unusual_Whales”, who runs the options data platform of the same name, also emphasized: It is too early to say whether Bitcoin price movements have stopped mirroring traditional markets.
“There could be a delayed effect. Hard to say the market has moved that much even this week.”
The Bank of England said on Wednesday it had begun aggressive bond buying to stabilize markets after the government’s economic plans sharply raised interest rates and sent the pound sterling to a low level not seen since the 1980s in always.
Nate Maddrey, Head of Research at Coin Metrics said:
“The correlation between BTC and the S&P500 (SPY) has risen to its highest level since March 2022 as Fed actions and other macroeconomic events have impacted both markets.”
“Historically, BTC is not highly correlated with the stock market, so the tide could turn back to a lower correlation. But at this point the data does not show any significant decoupling.”
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