Bitcoin’s correlation with Wall Street rises: Good news or bad?

Journalist

Posted: February 20, 2024

•  Bitcoin outperformed traditional U.S. stocks in 2024.
• The higher correlation has affected Bitcoin’s safe haven narrative.

The crypto market and traditional finance began to move in tandem in 2024 after a prolonged decoupling last year.

Notably, the correlation between Bitcoin [BTC], and popular stock indices like S&P 500 and NASDAQ 100 jumped to a 2-month high on the 19th of February, per on-chain analytics firm IntoTheBlock.

Source: IntoTheBlock

“Risky” markets come closer

AMBCrypto studied the price trajectories of the two asset classes and detected a degree of bullishness in both.

Bitcoin clearly emerged the victor, rising 16% year-to-date, while the S&P 500 Index recorded decent gains of 5.5% in the same time.

IntoTheBlock attributed the rally to strong expectations of rate cuts by the U.S. Federal Reserve.

With the inflation cooling significantly, market participants were hopeful of a more dovish stance, which would benefit risky assets like Bitcoin and stocks.

Source: Trading View

Take it with a pinch of salt

While the strong correlation relied on higher market liquidity and thus higher future prices, such a scenario should be viewed with caution.

Proponents of Bitcoin have long positioned it as a safe haven, or an investment whose value is expected to be steady or even rise during economic downturns, similar to precious metals like Gold.

Put simply, to be seen as an inflation hedge by investors, an asset must display significant detachment from traditional markets

Now if Bitcoin starts behaving like risky assets, this narrative turns upside down.

The other problem, ironically, has been the launch of spot Bitcoin ETFs. The investment vehicle makes it much easier for TradFi participants to trade Bitcoins.

It was highly likely that these investors would treat Bitcoin as another risky asset, causing it to respond to macroeconomic triggers in the same way that Wall Street reacts.

Such volatility may not be ideal for Bitcoin in the long term.

How much are 1,10,100 BTCs worth today?

That being said, Bitcoin’s 1-week realized volatility dropped significantly over the past month, according to AMBCrypto’s analysis of Glassnode’s data.

It remains to be seen if higher inflows into ETFs will inject more volatility into the crypto market.

Source: Glassnode

Journalist

Posted: February 20, 2024

•  Bitcoin outperformed traditional U.S. stocks in 2024.
• The higher correlation has affected Bitcoin’s safe haven narrative.

The crypto market and traditional finance began to move in tandem in 2024 after a prolonged decoupling last year.

Notably, the correlation between Bitcoin [BTC], and popular stock indices like S&P 500 and NASDAQ 100 jumped to a 2-month high on the 19th of February, per on-chain analytics firm IntoTheBlock.

Source: IntoTheBlock

“Risky” markets come closer

AMBCrypto studied the price trajectories of the two asset classes and detected a degree of bullishness in both.

Bitcoin clearly emerged the victor, rising 16% year-to-date, while the S&P 500 Index recorded decent gains of 5.5% in the same time.

IntoTheBlock attributed the rally to strong expectations of rate cuts by the U.S. Federal Reserve.

With the inflation cooling significantly, market participants were hopeful of a more dovish stance, which would benefit risky assets like Bitcoin and stocks.

Source: Trading View

Take it with a pinch of salt

While the strong correlation relied on higher market liquidity and thus higher future prices, such a scenario should be viewed with caution.

Proponents of Bitcoin have long positioned it as a safe haven, or an investment whose value is expected to be steady or even rise during economic downturns, similar to precious metals like Gold.

Put simply, to be seen as an inflation hedge by investors, an asset must display significant detachment from traditional markets

Now if Bitcoin starts behaving like risky assets, this narrative turns upside down.

The other problem, ironically, has been the launch of spot Bitcoin ETFs. The investment vehicle makes it much easier for TradFi participants to trade Bitcoins.

It was highly likely that these investors would treat Bitcoin as another risky asset, causing it to respond to macroeconomic triggers in the same way that Wall Street reacts.

Such volatility may not be ideal for Bitcoin in the long term.

How much are 1,10,100 BTCs worth today?

That being said, Bitcoin’s 1-week realized volatility dropped significantly over the past month, according to AMBCrypto’s analysis of Glassnode’s data.

It remains to be seen if higher inflows into ETFs will inject more volatility into the crypto market.

Source: Glassnode