The correlation between the price of bitcoin and the stock market has hit new highs this year. As a result, volatility in the macro market has had a huge impact on the price of bitcoin, which is one of the reasons for the recent price drop. But as time goes on, Bitcoin is working towards disassociating itself from this high correlation. Current data suggests that the cryptocurrency may finally have some breakthrough.
Factors driving bitcoin’s decoupling
Several factors have been behind the weakening of bitcoin’s relationship to the stock market. Some of these are quite obvious, while others are a bit left behind the scene. However, the end result has been the same.
Bitcoin miner sales have been the most prominent in recent times. With prices falling, rising interest rates and rising energy prices have forced miners to sell their stakes.
Another factor was one of the largest public companies selling off its BTC holdings. Tesla held about 48,000 BTC, but eventually sold 75% of all its holdings. This reduction in the bitcoin holdings of large companies saw the correlation of bitcoin to a decline in the performance of companies.
ETH open interest surpasses BTC | Source: Arcane Research
Funding to crypto companies has also declined. These investments are expected to continue declining as the market enters another stretched bear market. Add to that the increased cost of capital and access to PE, and bitcoin’s relationship with the stock market has begun to weaken.
stock market correlation down
Over the past few months, bitcoin has maintained a relatively consistent relationship with the stock market. It has to do with performance, whether with respect to stocks outperforming or underperforming. One of the most prominent pieces of evidence for correlation is the tendency for the stock market to move higher when it gains. However, August has shown a different streak for both the markets.
Typically, when the stock market is recording some kind of profit, the price of bitcoin has outperformed. But in the month of August, Nasdaq is up 5.77% so far, while Bitcoin has seen only 2.67% gain for the month. This deviates from Bitcoin’s natural tendency to post higher gains than the Nasdaq, evidence that the stock market’s correlation is weakening.
BTC loses steam and falls to low $23,000 | Source: BTCUSD on TradingView.com
Another proof of this is bitcoin’s relationship to riskier assets. As mentioned earlier, bitcoin’s correlation with these assets hit an all-time high a few months ago, but has now started to decline. Currently sitting at 0.5-0.6 levels, the correlation to riskier assets is now closer to annual lows.
Despite this, the correlation to the Nasdaq is still relatively high. Arcane reports the current level at 0.55. So while there is certainly some form of weakness underway, it is highly unlikely that these factors will lead to an outright weakening and disengagement from the stock market.
Featured image from Blockchain News, charts from Arcane Research and TradingView.com
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