Going mainstream isn’t always the best outcome for the asset, and cryptocurrencies have proved that. While increased adoption certainly brought legitimacy and capital to the market, it has also made it susceptible to macroeconomic changes.
stocking crypto
This is highlighted in the growing correlation between cryptocurrency and US stock market prices, which has been a worrying trend for analysts for some years now. This intensified last month when the US Federal Reserve’s stern stance and inflation reporting pulled both markets down.
Now, as both asset classes enter a period of stability, these fears have been renewed, especially as the Fed is expected to launch several announcements in the coming weeks.
Historical data showed that a positive correlation between stocks and crypto was first noted in 2018 when similar tapering by the Fed crashed both markets. While the stock fell nearly 20% in the fourth quarter of 2018, bitcoin fell by as much as 50%.
Although the trend may be about the first, its unparalleled acceleration since August 2021 has left many intrigued. Over the past month, bitcoin is down 12% against the dollar, while the S&P is down 10%, indicating that the gap between the two is narrowing with each crash.
Cambrian Asset Management CEO Martin Green highlighted the same point in a recent Forbes interview, noting that while the bitcoin-Nasdaq correlation was 0.2 over the past three years, “over the past several weeks, it has doubled to almost four.” Has gone.” she added,
“Today there is a higher correlation than six months ago… I would say that recently along two axes – up and down – bitcoin and tech stocks are together due to interest rates and inflationary concerns that have affected stocks and crypto. has done.”
no safe haven
As the International Monetary Fund (IMF) recently reported, crypto and tech stocks moving together could create a number of obstacles to global finance. These include the risk of infection which can cause investor sentiment to spread among markets.
A spillover can also be noted between crypto assets, as a similar correlation between the second largest cryptocurrency Ether, and the S&P 500 breaking record highs.
This has influenced the story of BTC being a safe haven equal to or better than gold. ChangeNow spokesman Mike Ermolaev argued in the same interview that this was behind its previous popularity.
He added that while macro trends were an important factor in BTC economic growth, it could also have played a role in its mainstream adoption by institutional investors. While outflows from BTC investment products have recently hit record highs, large investment groups are increasingly bullish on the nascent asset.
Even though this has brought legitimacy to the industry, it may prompt money managers to treat assets similar to traditional tech stocks, thus adding to the correlation.
“Over the years, a lot of money has moved into cryptocurrencies from traditional markets. During that time, traditional markets and crypto markets have converged. It is clear from various indicators that tech stocks and bitcoin are strongly correlated right now.”
Fortunately, there remains a silver lining in the midst of the chaos, as traditional stock market trackers bitcoin and ether could mean the prices of these assets rise whenever stocks rally.
Furthermore, an increase in institutional interest and long-term holders is a sign that the market is maturing and reducing its risk factor. Bitcoin tracking the S&P or NASDAQ could add to this narrative even more.