While the common notion is that bitcoin and stocks march to the beats of their own drums, they’ve been doing quite the opposite as of late. Both asset classes have recently been seeing eye to eye with closer correlation than one might imagine.
To start 2022, it appeared that inflation fears weren’t isolated to the equities market. Cryptocurrencies were also experiencing a broad sell-off that saw leading market currencies bitcoin and ethereum fall after hitting fresh highs late in 2021.
According to a CoinDesk article, the 90-day correlation between bitcoin and the S&P 500 rose to 0.49 last Friday, which marked its highest correlation since October 2020, based on data from Arcane Research. Even amid the U.S. Federal Reserve’s recent rate hike of 25 basis points, both asset classes haven’t diverged.
“Bitcoin’s correlation to the S&P 500 has only been higher for five days in BTC’s history, showing that the current correlation regime is unprecedented in BTC’s history,” according to Arcane Research’s weekly newsletter.
For the year, the S&P 500 is up 6.5% while bitcoin is down 9%. Looking at both charts, the zigs and zags of bitcoin highlight the volatility that investors can experience with the leading cryptocurrency based on market capitalization.
Investors looking to gain alternate exposure to bitcoin through a traditional market exchange can also look at the ProShares Bitcoin ETF (BITO). For the most part, it’s been staying in lockstep with bitcoin’s price movements.
Crypto Market Responds to Stock Market
Bitcoin has been touted as an inflation hedge with its disassociation with fiat currency, but lately, it’s been stocks that could be serving as the hedging strategy. This is especially the case in the current market environment, where the correlation with bitcoin has been profound.
“I wish I could say that crypto is really responding to fundamentals [high inflation], but I think the chief fundamental here is the crypto is responding to the rise in equity prices,” said Marc Chandler, managing director and chief market strategist at Bannockburn Global Forex.
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