Sebastian Sinclair

Indexes of major US stocks and crypto have ceased moving in tandem, for now.



A faltering connection between the pair could hint at the waning impact of macroeconomic factors on digital assets, including ongoing rate hikes and creeping inflation.



Diverging from a close correlation established last month, the relationship between the two asset classes has dropped to its lowest point in three months, <a href="https://app.intotheblock.com/insights/markets/indices/western" target="_blank" rel="noreferrer noopener">IntoTheBlock</a> data show.



As measured by a 30-day correlation coefficient, data on the performance compared to that of bitcoin show a reading of between -0.1 and -0.3 across the tech-heavy Nasdaq 100, the S&amp;P 500 and the Dow Jones Industrial.



Bitcoin finished 0.2% down on Monday at $23,500 after rallying 3% to $24,000, then conceding most of the day’s gains. US indexes, meanwhile, finished between 0.2% and 0.6% higher, buoyed by a rebound in fast-growth tech firms following a <a href="https://www.wsj.com/articles/global-stocks-markets-dow-update-02-27-2023-426fc9b9" target="_blank" rel="noreferrer noopener">disastrous last week</a>.



A coefficient of 1 indicates a strong positive correlation between the two prices, while a coefficient of 0 suggests no correlation. A posting of -1 implies a strong negative correlation, where the prices of bitcoin and a given asset tend to move in opposite directions.



Throughout 2022, crypto and US equities had largely tracked their performance to each other and had not dipped into negative territory until the collapse of FTX in November, data show.&nbsp;



By late December, the correlation began to recover from its lowest print in over two years before reaching local highs in late January — a correlation not seen since early September 2022.



Although liquidity is still circulating in the US equity markets, crypto investors are cautious and capital is drying up, Sylvia To, research lead at crypto exchange Bullish told Blockworks. That, in turn, is prompting market makers post-FTX to reinforce their counter-party risk frameworks.



&#8220;Liquidity is rather thin in crypto at the moment so it doesn&#8217;t take much to move markets,&#8221; she said. &#8220;We&#8217;ve seen a series of shorts liquidated in the past few weeks driving that rebound in BTC/USD with strong support past that $20,000 zone.&#8221;



It comes as the number of bitcoin whales has dropped to its lowest point in three years to 1,663, <a href="https://studio.glassnode.com/metrics?a=BTC&amp;m=entities.Min1KCount" target="_blank" rel="noreferrer noopener">Glassnode data</a> show. That figure was slightly lower than last week’s recording of 1,664, hinting at a decline in the number of large bag holders.



According to Glassnode, the metric can be interpreted as a positive sign for the crypto as it may point to ownership becoming more decentralized.



Bitcoin whales by Glassnode’s standards are individuals who hold more than 1,000 BTC and can potentially shift markets due to their ability to buy or sell large amounts of the asset at once.



The amount of bitcoin currently being held or lost, as opposed to being actively traded or used for transactions, also hit its highest point in five years above 7.6 million BTC, <a href="https://studio.glassnode.com/metrics?a=BTC&amp;m=indicators.HodledLostCoins" target="_blank" rel="noreferrer noopener">Glassnode data</a> show.



The figure suggests that a large amount of bitcoin is currently being held for the long term or is not accessible, which is typically seen as a bullish sign.



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Stocks and Crypto Correlation Shows Signs of Weakening

Digital asset prices jumped to life Monday as bellwether crypto bitcoin found reprieve above $17,000, an area of contention that saw mild volatility oscillating around a key support line.



Bitcoin jumped to its highest point in more than 20 days above $17,400 dragging most crypto higher on intra-day trading before conceding all of its gains and finishing down 0.8% on the day.



The initial charge in crypto, egged on by Federal Reserve chair <a href="https://blockworks.co/news/powell-leans-hawkish-ahead-of-december" target="_blank" rel="noreferrer noopener">Jerome Powell’s</a> hint last week of slowing interest rate hikes this month, also did little to quiet concerns over traditional equities, which slid further on the day.



An initial rally that began to pick up steam towards the end of last month has been short-lived where major stock indices posted a peak around Nov. 30 and Dec. 1 before giving up most gains on the back of the Fed’s interest rate flag.



The Dow Jones Industrial Average shed 1.4%, to 33947 while the Nasdaq Composite also dropped 1.9%, closing at 11239, Tradingview data shows. The S&amp;P500 also fell 1.8% to 3998.



Most digital assets over a 24-hour period traded in the red Monday down between 1% and 3%, a mild showing by comparison. Axie Inifinity’s native crypto, AXS, saw the largest gains among projects with a market capitalization above $1 billion — climbing 29% on the day.



It would appear, at least in the short term, the decoupling of crypto assets&#8217; correlation to tech stocks is waning as volatility in the market begins to slow following FTX’s collapse.



Bitcoin’s 30-day correlation coefficient to the tech-heavy ETF known as the Qs fell to its lowest level in more than <a href="https://blockworks.co/news/bitcoin-qqq-correlation-dips-to-new-low" target="_blank" rel="noreferrer noopener">three years</a> — hinting at a further divergence in the relationship between traditional equities and crypto.



Still, Zhong Yang Chan, CoinGecko’s Head of Research told Blockworks via Telegram the challenging macroeconomic environment of high inflation, lower consumer spending and a risk-off attitude generally meant future volatility couldn’t be ruled out.



“Bitcoin seems to have found a support level post-FTX collapse at around $16,000,” Chan said. “The Fed’s latest announcement on potentially moderating interest rate hikes has provided some respite, but may also be a precursor to holding interest rates high for a longer period of time.”



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Bitcoin Price Holds $17k as Tech Stock Index Slips

Casey Wagner

<div id="highlights-block_62bc8f1cb2be3" class="highlights">
 <ul>
 <li>Bitcoin and ether fell back from previous record-breaking correlations with stock prices</li>
 <li>Traders still have an eye on equities though, and a rebound in stocks is expected to be good news for crypto prices</li>
 </ul>
 
</div>



Bitcoin and ether prices have decoupled from their previous all-time high correlations with equities, but experts say traders shouldn’t write off stock prices just yet.&nbsp;



In May, the correlation coefficient between bitcoin and the tech-heavy Nasdaq broke 0.8 for the first time — bitcoin’s correlation to the S&amp;P 500 also hit similar levels in early May. In June, the correlation between bitcoin and the S&amp;P 500 fell to around 0.5, according to <a href="https://charts.coinmetrics.io/correlations/#435" target="_blank" rel="noreferrer noopener">data</a> from Coin Metrics. A coefficient of 1 means the assets are moving in tandem, while a -1 signals the opposite. 


<div class="wp-block-image">
<figure class="aligncenter"><img decoding="async" src="https://lh3.googleusercontent.com/o0MhaK6N_M9A14tljOY3FoWyVnz9CU1wtTzlLLWLU_3Szzzv8aWzW8Jr096jug_pU31jlVt3U0-ixEd7z2idLTXz_2PVbtRQoNXLEUJZkVpdNKER-9YJZQWEJH9DuAn2jhlpCfX4GLopRw5psw" alt=""/><figcaption>Source: Kaiko</figcaption></figure></div>


“Previous all-time highs were reached in the aftermath of the March 2020 crash, where all financial assets experienced extreme drawdowns, which saw BTC&#8217;s correlation with the S&amp;P 500 hit 0.76,” said Clara Medalie, strategic initiatives and research director at data provider Kaiko.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Since May&#8217;s all-time highs, bitcoin&#8217;s correlation has since retraced following a divergence in trading patterns for the two asset classes.” </blockquote>



Ether, which for the past six months has traded almost as one with bitcoin with a correlation coefficient of 0.9, has experienced the same trend. In May, the correlation coefficient between ether and the S&amp;P 500 broke 0.7 before falling to around 0.60 in June, according to <a href="https://charts.coinmetrics.io/correlations/" target="_blank" rel="noreferrer noopener">data</a> from Coin Metrics. 



“This divergence was spurred by a wave of dramatic collapses of some of the industry&#8217;s largest firms, causing crypto prices to tank far faster than equities,” Medalie said.&nbsp;



But even as bitcoin and ether begin to trade more independently from equities, the broader trend is likely to continue.&nbsp;



“Crypto is highly correlated to equities, so if equity markets were to turn around, this would likely have a bullish effect on crypto,” Medalie said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“It is clear that investors have treated equities and cryptoassets as risky assets over the past few months amid an increasingly fraught macro environment.” </blockquote>



Analysts are not holding their breath for a stock market bounce anytime soon, especially with current inflation levels and increasing uncertainty surrounding the Federal Reserve’s plans for interest rate increases.&nbsp;



“No one wants to buy the dip anymore after seeing a few stock market rebounds get completely faded,” Edward Moya, senior market analyst at OANDA, wrote in a note Wednesday. “Investors removed $10 billion out of equity funds last week and it doesn’t seem likely that sentiment will dramatically improve that the Fed will be able to deliver that soft landing.”&nbsp;



Traders are still keeping a close eye on stocks, Dan Matuszewski, co-founder of investment firm CMS Holdings, said. Invesco’s QQQ Trust, known as the Qs, is one tech-heavy ETF Matuszewski said he’s always watching.&nbsp;



“We mostly do what the Qs are doing,” Matuszewski said. “They’re a pretty good proxy for a while now, at least until things calm. I say this because we come in every day and sometimes we’re really just trading the Qs.”



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



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