Bitcoin’s Correlation With Stocks, Bonds Hits 3-Month Low

Recent turmoil for crypto companies has led to price divergence between bitcoin and stocks


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key takeaways

  • Bitcoin’s trading pattern with stocks and bonds starts to decouple after all-time highs earlier this year
  • The decoupling is because bitcoin has largely underperformed the broader market, analysts said

As markets grapple with an increasingly uncertain macroeconomic outlook, bitcoin’s days of trading like big tech stocks may be numbered. This may not be good news for crypto traders. 

The largest digital currency’s correlation with the aggregate bond index and the Nasdaq 100 index has fallen to a three-month low, according to a new data report from research firm Kaiko.

Bitcoin’s decoupling from big tech is due to its underperformance in recent weeks. Both stocks and bonds saw unusually large declines since the start of 2022, researchers pointed out, but bitcoin has since fared worse. Bitcoin is down roughly 50% year to date, moving in sync with global risk sentiment. 

The collapse of Terra’s ecosystem followed by some of the industry’s largest companies has caused a divergence, which appears to persist as markets are looking for direction, the report noted. 

“For the past year, crypto and equity markets have traded tightly together, experiencing record high correlations in May,” said Clara Medalie, strategic initiatives and research director at data provider Kaiko. “However, over the past few months this correlation has weakened slightly after crypto markets suffered a sell-off magnitudes greater than what the S&P 500 or Nasdaq equity indices experienced.”

In May, the correlation between bitcoin and the tech-heavy Nasdaq broke 0.8 for the first time — bitcoin’s tandem trading to the broader S&P 500 also hit similar levels in early May. In June, the correlation between bitcoin and the S&P 500 fell to around 0.5 and has hovered there ever since, according to Coin Metrics data. A coefficient of one means the corresponding assets are completely aligned, while a negative-one reading signals the opposite. 

The US Bureau of Labor Statistics is set to release July’s consumer price index on Wednesday, which Medalie said could push cryptos to move more in line with broader markets.  

“What we’ve seen over the past year is that correlations tend to strengthen around key releases of economic data, such as Fed meeting notes or inflation numbers,” Medalie added.

Others agreed, noting that a turnaround for bitcoin will be a challenge without a rally in the broader market. 

“Bitcoin’s rally is stalling as crypto traders need to see what happens with tomorrow’s inflation report,” Edward Moya, senior market analyst at Oanda, said. “Inflation is what killed Bitcoin late last year and if pricing pressures are showing significant signs of easing, Bitcoin might be able to burst above its recent trading range.”

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