As decentralized digital assets, Bitcoin and the crypto market as a whole have often been viewed as an isolated bubble or safe haven from the traditional stock market.
As an asset class, however, cryptos have always been tied to stocks, with the price level of the most important indices being closely monitored. This was clearly evident in the global stock market crash in March last year when Bitcoin plunged nearly 50% as both the S&P 500 and NASDAQ indexes suffered 30% losses.
In some ways, however, that correlation has been a boon to the crypto market in recent times. Since the beginning of 2021, cryptos hit new highs, with Bitcoin and Ethereum returning 100% and 150%, respectively. With historically low interest rates and the Federal Reserve’s extensive repo operations, the tech sector and NASDAQ rebounded and even supported the crypto market. However, recent fears about rising government bond rates and yields have resulted in a mass sell-off, with NASDAQ and Bitcoin falling 10% from their respective highs.
Bitcoin Monthly Moving Correlation to Equities Drop
Bitcoin’s 30-day correlation to stocks rose to 0.4, its highest level in months. Many investors and analysts expected another correction in the tech-heavy NASDAQ index as higher interest rates hurt future cash flow and debt-heavy growth stocks continue to lose their appeal. Given the high level of correlation and rising government bond yields, the indicators suggested that bitcoin tended to be lower in the short term.
However, the major cryptocurrency recently broke its correlation with the NASDAQ. This week alone, Bitcoin-to-stocks correlation levels continued to decline, ending the week just below 0.2. While this is not necessarily a bullish indicator, it is a positive sign of Bitcoin’s near-term price level.
Next week will be important for #Bitcoin as intra day correlations to equities are falling again.
— Jan & Yann (@Negentropic_) March 20, 2021
This is due to the fact that NASDAQ continues to face downward pressure as the technology’s astronomical valuations are harder to justify with current macroeconomic developments. At previously high levels of correlation, Bitcoin’s potential move above $ 60,000 would likely have been dampened by bearish sentiment in technology stocks.
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