As sentiment around Bitcoin (BTC), stocks and cryptocurrencies diverges, it is less in line with the stocks of tech companies.
Bitcoin, the world's largest cryptocurrency, remained below the $27,000 level this week, while the tech-heavy Nasdaq 100 rose 3.5%.
40-Day Correlation Between Bitcoin and Nasdaq Approaches Bottom Level in 2021
The 40-day correlation coefficient between Bitcoin and the Nasdaq dropped to 0.19 on Friday, hitting the lowest level since April 25. A value of +1 indicates that the assets are moving in the same direction, while a value of -1 means the opposite. Before April, the lowest value was seen in November 2021.
Bitcoin and stocks, especially emerging stocks, have been in tandem for some time as investor appetite for both has increased during the era of low interest rates.
This situation has changed since the beginning of the year as the uncertainty regarding the Fed's rate hikes and the bank crashes in March caused different reactions from investors in both markets.
Fiona Cincotta, senior market analyst at City Index, commented:
“A divergence occurred with Bitcoin trading sluggish as the Nasdaq 100 rose. Bitcoin is currently in the consolidation period.”
Some experts evaluate this situation as follows:
The correlation with the Nasdaq has been severely deteriorated by factors such as the LUNA and FTX crash, which is a major crisis for cryptocurrencies. These situations, which only affected the crypto market, caused Bitcoin to decline even on the days when the Nasdaq rose above 6 percent.
The correlation, which deteriorated at that time, has moved towards the lowest levels seen since 2021 at the point reached. In this context, it would not be wrong to think that "possible positive news about Bitcoin may cause Bitcoin, which has bottomed out in correlation with Nasdaq, to react more to these news and rise harder".
On the other hand, FRNT Financial Inc., an institutional platform focused on digital assets. According to Stephane Ouellette, CEO of the company, this correlation is expected to break down, as Bitcoin is still relatively new to many investors. He said that Bitcoin's ability to hide without the need for intermediaries helped this asset during bank crashes.
“We have seen days when negative banking headlines caused panic in the stock markets but benefited Bitcoin,” Ouellette said. Correlations emerge from market participants' consensus on how certain assets will behave under a set of conditions, he added.
Sylvia Jablonski, CEO and chief investment officer of Defiance ETFs, said that Bitcoin remains a riskier asset than tech stocks in an uncertain macro environment, which may keep some investors on hold.
He also added that there is no factor forcing investors to buy Bitcoin, while technology stocks are rising with the excitement surrounding artificial intelligence.
*Not investment advice.