Bitcoin Stock Correlation Rises After Decoupling From Wall Street Amid FTX Drama

While BTC price took off on Alameda-FTX and Genesis-Gemini news, it broke away from the S&P 500 and NASDAQ Composite. But after pricing in the cryptocurrency markets on the news, it was poised to rally along with stocks.

Due to the correlation between Bitcoin stocks, the price of cryptocurrency exchange markets is moving in parallel with tech stocks such as Tesla (NASDAQ: TSLA).

Jake Gordon of Bespoke Investment Group said:

“It seems to me that bitcoin is trending higher in sympathy with stocks/risk assets. The most interesting thing is that bitcoin’s run is coming from a very narrow range since the whole FTX saga as well. The coming days will be a good test if we clear the highs of December.”

It shows that even several massive cryptocurrency launch failures are not enough to keep the price of Bitcoin down for long. But what is particularly revealing is that Bitcoin stock correlation has become a secular trend.

Bitcoin stock correlation rose to a record high in December

The question is just how high or low will Bitcoin go up or down compared to stocks over most periods? And how long will this regime last – a few months, years or decades?

Analysts from data and insights provider Kaiko wrote in a note earlier this month:

“[In 2022] Bitcoin’s correlation with the S&P 500 reached record highs and fell to a 15-month low. The lowest levels were reached during the FTX collapse, while the highest levels appeared in the last week of December. This is the best evidence yet of a macro return.”

Caico analysts noted that the correlation is driven by the global macro interest rate environment. They noted that a one-year hike in central bank interest rates was the least favorable to risk assets such as cryptocurrencies and technology stocks in a while.

When will the S&P 500 and NASDAQ Bear Market end?

The fact that Bitcoin stock correlation dropped during the FTX crisis makes sense. It was a local event in the crypto sector that sent crypto prices down significantly. So we can see the insolvency crisis period shown in the bitcoin stock correlation chart.

But the fact that it not only resumed, but posted record highs thereafter, says two things: It indicates that Bitcoin will easily ride out the FTX crash.

It has passed in correlation diagrams practically like a photogram. So it is bullish overall and long-term for Bitcoin. Markets understand that the scandal was an Alameda-FTX problem, not Bitcoin.

What it also tells us is that Bitcoin macro coupling is now an established fact of our financial reality. With so many months of close correlation, perhaps even tighter without bankruptcies this year, bitcoin price and stock levels appear to be closely correlated.

Bitcoin is basically a macro investment. When interest rates are high, capital flows into lending for interest. When it’s low, it runs away from tradfi and looks for returns in risky assets like stocks and cryptocurrencies.

So the big question is, when will the bottom be for the S&P500? The bitcoin price bottom is likely somewhere near there. No one can be sure, but the average time the S&P 500 has spent in historical bear markets is 13 months. If this holds true for the current market, that would mean sometime in 2023.

Bitcoin Stock Correlations Post Split From Wall St Amid FTX Drama appeared first on CryptoPotato.

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