Risk-On Appetite Falters: Bitcoin Trades Like Big Tech

Bitcoin, once touted for its uncorrelated nature, is starting to trade more like stocks

article-image

Source: Shutterstock

share

key takeaways

  • As investors embrace a risk-off approach, bitcoin is trading more in sync with equities
  • The correlation will fade and bitcoin will rise, though, analysts say

Amid growing concerns about inflation and looming rate hikes from the Federal Reserve, bitcoin has been moving more in sync with stocks than ever before. 

An imminent end to the Fed’s ultra-easy monetary policy days has investors reconsidering their appetite for risk. 

“The same players who pursued significant risk-on sentiment are now moving towards a risk-off approach as the Fed gears up to change course on interest rates,” said Josh Olszewicz, head of research at Valkyrie Funds. 

Though bitcoin is trading more in tandem with the tech-heavy Nasdaq, traders expect the association to weaken over time. 

“Markets tend to increasingly correlate on the down side, and eventually this trend may decouple, just as it has in years prior,” said Olszawicz. 

The correlation coefficient between bitcoin and the Nasdaq broke 0.60 earlier this month, the highest level in more than a year, according to a report from crypto data firm Kaiko. The digital currency is also trading more closely to the S&P 500. A coefficient of 1 means the assets are moving in tandem, while a -1 signals the opposite. 

Bitcoin, once touted for its uncorrelated nature, is starting to trade more like stocks

Bitcoin has dropped more than 20% on the year. The Nasdaq has lost close to 14% over the same period. Cathie Wood’s ARK Innovation ETF (ticker ARKK), which has top holdings in Spotify, Tesla and Zoom, is down more than 30% year-to-date/

“Bitcoin should remain as a sound money alternative while some players in the tech sector are likely to be better priced according to their fundamentals,” Olszawicz said. 

Once the current sell-off rebounds, bitcoin should start to trade in a less-correlated way, analysts project. 

“The ‘don’t fight the Fed’ mantra pertains to all risk assets, notably equities,” said Mike McGlone, senior commodity strategist at Bloomberg Intelligence. “Cryptos are among the riskiest most speculative assets, but bitcoin is the least risky crypto.” 

Bitcoin’s increasing adoption will help, too, McGlone added. 

“I expect bitcoin to come out ahead in this market risk-off period as the benchmark crypto transitions to global digital collateral, which is a minor fraction of most portfolios,” McGlone said. “That’s changing, and 2022 may mark a key transition period.”

[stock_market_widget type=”accordion” template=”chart” color=”#5679FF” assets=”BTC-USD,^IXIC,^GSPC,ARKK” start_expanded=”false” display_currency_symbol=”true” api=”yf” chart_range=”1mo” chart_interval=”1d”]


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Screenshot 2024-05-23 091855.png

Research

Bitcoin L2s aim to boost scalability while preserving decentralization and security, unlocking a better user experience, and new avenues for Bitcoin-powered innovations. However, no existing Bitcoin L2 leverages the full security of Bitcoin.

article-image

After accelerating conversations with issuers, the SEC took a step toward allowing ETH funds to launch

article-image

As FIT21 advances to the Senate, experts are cautiously optimistic but say to expect some changes to the bill

article-image

Three Democrats joined Republicans Thursday in supporting a bill that would block the Federal Reserve from issuing a retail CBDC

article-image

Plus, Zeta Markets has released a litepaper for the “Zeta X” layer-2 it’s hoping to send to mainnet in early 2025

article-image

From CME Group’s launch of ether futures to congressmen urging the SEC to approve spot funds, a lot has led up the agency’s decision

article-image

Sponsored

As part of the #Breakout2024 plans, Radix has introduced Token Trek