Bitcoin: Bitcoin’s rising correlation with tech weighs on hedge appeal

A familiar tone emerged in the market on Friday: tech stocks saw a small rebound and around the same time, Bitcoin reversed course as well, highlighting the cryptocurrency’s tendency to move at the same time as other risky assets.

The world’s largest digital token rose 0.6% to $43,080 on Friday as of 3:46 pm New York time. Market veterans may not have been surprised to see that the Nasdaq, which is heavily weighted toward the big tech companies, also advanced.

According to Matthew Siegel, Head of Digital Asset Research at VanEck: “Bitcoin is following the usual near-term pattern, with a relatively high correlation with the Nasdaq and other technology stocks.”



Practically all week, cryptocurrencies have skewed and turned in the same way that tech stocks have, with both groups of assets coming under pressure as the Federal Reserve becomes more hawkish in its policy.

Marco Babic, chief strategist at Clocktower Group, agrees. He said bitcoin is “a high beta risk asset,” adding that “in an environment where the Federal Reserve is getting more hawkish, you don’t really want to own a high beta asset.”

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The currency’s 100-day correlation coefficient and the Nasdaq 100 now stand at 0.40, among the highest of these readings dating back to 2011. (A coefficient of 1 means the assets are moving at a steady pace, while minus -1 will show that they are moving in opposite directions.)

“People are stepping back and saying, OK, what is Bitcoin?” Victoria Green, co-founder and chief investment officer at G Squared Private Wealth, said over the phone. “Bitcoin shows much more propensity to track and correlate with the Nasdaq and the market than inflation and an uncorrelated currency.”

For most of its 13-year history, Bitcoin has enjoyed an environment of easy monetary policy and zero or negative rates. But stocks and cryptocurrencies have been volatile lately as the Federal Reserve prepares to withdraw the pandemic-era stimulus that has been in place for the past two years. While there is no direct line from Federal Reserve coffers to Bitcoin buy orders on exchanges, there is a connection, according to analysts who say that less money in the system means fewer dollars are going into cryptocurrencies as well.

“If this continues in terms of correlation, we think the cryptocurrency may lose its attractiveness as a hedge and we are starting to see that now,” said Anderson Lafontant, senior advisor for advanced planning at Miracle Mile Advisors.

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