The pressure on macroeconomic indicators due to a host of factors that sprang in the first half of this year led to great volatility in market conditions. Bears toppled equities across sectoral indices on a global level. This also showcased a new pattern of trading in the cryptocurrency market, especially the leader Bitcoin which did take a massive beating. There was a correlation between the movement of Bitcoin and stocks. In the past, where Bitcoin or other cryptos were seen as a medium of escape from volatile conditions, and even compared to havens like gold, were vulnerable just like equities. However, this year, the correlation between Bitcoin and stocks are higher. In August so far, markets are recovering from their previous losses, and stocks have managed to perform better compared to Bitcoin.
On Thursday, the Nasdaq Composite index is trading at 12,982.46 up by 44.34 points or 0.34% at around 12.09 pm EDT. The index inched closer to 13,000-mark and touched an intraday high of 12,996.14. The index had crossed more than 13,100 levels earlier this week.
Taking into consideration Thursday’s high, the tech-heavy index Nasdaq Composite has climbed by around 5% so far this month. Its weekly gain is around 2%. While in a month, the upside is more than 14%.
Also, S&P 500 index was a couple of points shying away from the 4,300 mark today. It has touched an intraday high of 4,288.03. While Dow Jones neared the 33,400 level after clocking the day’s high of 33,993.87.
Both S&P 500 index and Dow Jones have surged by around 4% so far in August if taken into consideration their day’s high. S&P 500 has surged over 11.5% in a month, while Dow Jones climbed over 9%.
The US market is still trading. Its not just the US market, even Indian equity benchmarks have performed better than Bitcoin.
In the Indian market, Sensex closed at 60,298 and Nifty 50 at 17,956.50 with marginal gains. However, so far in August, Sensex and Nifty 50 have soared by 3.75% and 3.5% respectively. In a month, from July 18 to Thursday, Sensex has skyrocketed by a whopping 5,530.38 points or 10.10%, while Nifty 50 has risen by 1,615.95 points or 9.9%.
Coming to Bitcoin, as per CoinMarketCap, Bitcoin is trading currently at $23,460.41 marginally up. Its weekly drop is around 4%, while in a month the crypto has jumped a little over 1%.
Meanwhile, as per Coingecko, Bitcoin has advanced by nearly 2.6% in 14 days.
Thus, Bitcoin has underperformed compared to Nasdaq Composite.
The co-relation between Bitcoin and Stocks:
Earlier this week, analyst Vetle Lunde at Arcane Research in his report said, BTC’s short-term correlation to the broad financial markets has declined towards yearly low levels, with BTC underperforming Nasdaq. He added, the correlation of BTC to equities is likely caused by a myriad of forces, mostly connected to BTC being viewed as a risk asset by professional investors, in addition to BTC’s relationship to general liquidity and monetary policy.
Lunde highlighted three forces. Firstly, reduction of BTC holdings from large public companies like Tesla. Secondly, forced selling from miners on the backdrop of increased interest rates and energy prices.
Thirdly, he pointed out that previous ease of access to private funding and a sharp focus on growth by crypto companies amid the fruitful bull market conditions in 2020-2021. This was followed by a very sobering hangover related to the increased cost of capital and general reduction of access to private funding for growth-oriented private crypto companies, creating the perfect condition for the May and June meltdowns.
Notably, Bitcoin has also suffered from a cautious sentiment in the crypto market after the Terra twin sisters collapse and the liquidation of Three Arrows Capital where investors have lost billions of dollars. Also, the liquidity crunch in cryptocurrency exchanges has forced some to suspend withdrawals in their wallets while freezing investors’ money, while some opt for bankruptcy or seek other investment proposals for recovery. The market is still scarred by these shocks and it has impacted sentiments on a certain level.
“Yet, BTC’s current 30-day correlation to Nasdaq remains high at 0.55. Automated trading strategies and the well-known associated correlation between bitcoin and other risk assets may act as a self-fulfilling prophecy in the coming period. The aforementioned softening correlation forces may not be sufficiently strong to lead to a structural shift in this trend,” Lunde added. He also pointed out that bitcoin and gold have been largely uncorrelated since May.
Where is Bitcoin headed?
Om Malviya, President, Tezos India said, “Cryptocurrencies and stock markets are generally correlated as the factors affecting the prices and the investors/traders of both follow similar trends. At a global level, traditional investors are flocking to stocks in comparison to cryptos considering the volatility of the latter. They would want to see the crypto market steadily rising for a while before making any decisions to actively start investing like they are usually doing in stocks.”
“Bitcoin has always broken its previous highs, and we expect the same to happen as and when the market and inflation situation keeps improving. This is the time to keep accumulating bitcoin in various price ranges, as per an individual’s risk appetite,” Tezos President added.
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