Bitcoin is trading in tandem with stocks? This chart shows that relationship as markets face a more hawkish Fed

This argument has always existed — some bitcoin proponents have described the cryptocurrency as “digital gold,” an inflation hedge and a store of value.

But others point out that Bitcoin was recently traded side by side With the sentiment around the stock market, especially over the past few months, as investors adjust to the Federal Reserve’s plans to tighten financial conditions for the first time in nearly two years, and sooner than previously expected.

As evidence of this trend, the 100-day correlation between Bitcoin and BTCUSD,
+ 0.17%
and the stocks represented by the S&P 500 SPX,
+ 0.92%And
It hit about 0.49 on Tuesday, the highest level since July 2020, according to Dow Jones market data.

Moreover, the 60-day correlation between bitcoin and the S&P 500 reached 0.54, the highest since at least 2010, in the cryptocurrency’s early days.

Correlation, which indicates how much different assets trade in relation to each other, ranges in size from -1.00 to 1.00. Positive correlation means that the assets are moving in the same direction, while negative correlation means that they are moving in the opposite direction.

The higher the absolute value of the coefficient, the stronger the relationship. This chart shows that Bitcoin has maintained a positive correlation with S&P and Nasdaq Composite since February 2020, respectively, which means that the assets have generally been moving in the same direction. It also shows an upward trend in Bitcoin’s relationship with both the S&P 500 and Nasdaq Composite since August 2021.

Correlation between Bitcoin and Nasdaq Composite, S&P 500, Gold, and WSJ Dollars, respectively (excluding weekend changes to Bitcoin)

Dow Jones Market Data, CoinDesk

Specifically, the 100-day relationship between bitcoin and the tech stocks represented by the Nasdaq Composite,
+ 1.41%
It reached a local high of around 0.47 on Friday, the highest since October 2020.

The rate-sensitive Nasdaq slipped at a rough start to the year, ending its first week three percentage points below correction territory, before regaining ground lost on Monday and Tuesday.

Since early 2021, the correlation between bitcoin and the S&P 500 or Nasdaq Composite has been much higher than the correlation between bitcoin and gold, which has traditionally been seen as a hedge against inflation. However, bitcoin and gold had a negative relationship over several periods.

“In the second half or the end of last year, I think Bitcoin really got into the macro environment,” said Jason Lau, COO of crypto exchange OkCoin. “The news about the Federal Reserve, the news about COVID, the news about anything…especially with the inflation outlook, kind of feeds into this narrative.”

With bitcoin trading below its November high, crypto-mining stocks posted even bigger losses. According to crypto data analytics firm Arcane Research, its market capitalization weighted index, which consists of 15 of the largest publicly traded bitcoin miners, is down nearly 50%, in contrast to bitcoin’s 38% drop since November 10, when bitcoin reached its highest level. Absolutely.

Arcane Research indicated in a Tuesday report that mining stocks tend to outperform bitcoin in bullish cycles and bitcoin underperform when trading in a downtrend.

With US stocks closing higher on Tuesday, Bitcoin also rebounded from Monday’s losses, trading at around $42,873, up 2.8% over the past 24 hours. Ether ETHUSD,
+ 0.18%
A gain of 5.6% to about $3,242. Bitcoin mining company Marathon Digital Holdings Mara,
+ 2.25%
It closed up 2.2% on Tuesday at around $29.58. Crypto mining equipment company Ebang International EBON,
+ 9.56%
It posted a gain of 9.6% at around $1.03.

Dow Jones Industrial Average DJIA,
+ 0.51%
It finished 183 points Tuesday, or 0.5%, at about 36,252 points. The S&P 500 finished 0.9% higher, while the Nasdaq Composite recorded a gain of 1.4%.

Read more: Nasdaq drives stocks higher as investors take Powell’s testimony in stride

Listen to: How Cryptocurrency Makes Us Rethink Money

Ken Jimenez contributed to this article

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