mop
- In the past few months, Bitcoin’s correlation with tech stocks and in particular the Nasdaq 100, has been stronger than ever, with 30-day rolling correlations with the index as high as 0.91 – meaning the two assets move practically in lockstep.
- Nevertheless, there are some cryptocurrency investors who are hoping that Bitcoin may breakout of its correlation with traditional risk assets such as tech stocks.
For the longest time, cryptocurrency traders lived in their own metaverse, away from the bang and the clatter of Wall Street, and more importantly, insulated from macro factors that affect the price of other assets.
The way interest rates have very little effect on whether you bet on red or black at the roulette table in a casino, cryptocurrency traders were ensconced and blowing a bubble of their own making.
But that changed when more mainstream investors started pouring into the space, creating all manner of traditional wrappers for cryptocurrencies, from trust products to futures-based ETFs.
And that has meant that crypto traders have increasingly had to deal with something they would much rather avoid – macroeconomics, because the same factors that affect certain assets, are increasingly expected to affect cryptocurrencies as well.
In the past few months, Bitcoin’s correlation with tech stocks and in particular the Nasdaq 100, has been stronger than ever, with 30-day rolling correlations with the index as high as 0.91 – meaning the two assets move practically in lockstep.
That Bitcoin, which had been fiercely independent at inception, is now seemingly unable to chart its own course has been an awkward fact for managers touting the portfolio diversification value of introducing a little bit of Bitcoin into a typical investment portfolio.
As central banks globally start tightening monetary conditions to stave off inflation, both tech stocks, which are particularly rate-sensitive and Bitcoin, have seen huge swings in both directions.
Nevertheless, there are some cryptocurrency investors who are hoping that Bitcoin may breakout of its correlation with traditional risk assets such as tech stocks.
One possibility is that as inflation stabilizes at higher levels, not running away, but not running out, it could disrupt the negative correlation between haven assets like U.S. Treasuries and equities.
In such circumstances, it’s possible that cryptocurrencies could be viewed in a different light and its currently strong correlation with tech stocks, could decline.
