Bitcoin’s correlation to US stocks hits 20-month low

Bitcoin’s correlation to US stock markets just fell to its lowest level in more than a year and a half. That’s according to crypto analytics firm CoinMetrics, which presents a chart showing that Bitcoin’s 30-day Pearson correlation between Bitcoin and the S&P 500 just fell below 0.20, its lowest level since September 2021.

It’s a major reversal from mid-2022, when Bitcoin and stocks largely moved in lockstep and the 30-day correlation briefly exceeded 0.7.

And given the divergence in the Bitcoin price (which has risen) and the S&P 500 (which has weakened) over the past two weeks, that correlation is likely to continue to fall.

If it falls below 0.08, it will hit a three-year low.

Why is Bitcoin’s correlation to stocks breaking down?

In 2021 and 2022, Bitcoin was largely seen as a speculative technology/asset that should be traded according to liquidity conditions, much like a technology stock.

That largely explains why the cryptocurrency saw such a big pump in 2020 and 2021 as the US (and global) economy was loaded with fiscal and monetary stimulus, before then retreating aggressively in 2022 as stimulus was withdrawn (primarily via aggressive interest rates). increases from major central banks).

Bitcoin’s 2020/21 pump and 2022 dump meant that the price moved largely in line with the US tech equity sector.

But the bubbles from a financial crisis in early 2023 are putting this relationship to the test.

Instead of seeing Bitcoin as a speculative asset (like a technology stock), investors can finally start seeing Bitcoin the way its creators and advocates have wanted them to see it all along – as a safe alternative to the fiat-based central bank-centric fractional reserve banking system.

In recent weeks, Bitcoin has staked a decent claim to the title of “digital gold”.

Bitcoin is up over 40% from previous monthly lows below $20,000 as investors look to alternative, “harder” currencies/mediums of exchange, with the cryptocurrency rising in line with gold prices.

Fiat currencies (such as the US dollar, euro and British pound) are not considered as difficult as gold and Bitcoin, as their value can be more easily eroded via inflation.

Bitcoin has thus captured a safe-haven bid just as US stocks have weakened, with investors fretting amid uncertainty over how bad the current troubles in the banking sector will become, and how much this will affect the outlook for economic growth.

Here’s why BTC’s falling correlation to stocks is bullish

Bitcoin is not just a speculative technology that is likely to disappear soon.

It is a highly robust, indestructible, decentralized peer-to-peer payment system that offers a real, fairer and transparent alternative to the existing financial system.

And investors finally seem to be treating it as such, a bullish sign for the cryptocurrency.

If the banking crisis worsens and stocks fall as a result, this is likely to further stimulate safe haven gains in Bitcoin.

Meanwhile, even if the US authorities manage to avert a crisis, the prospect of significant further tightening by the US central bank has probably been dealt a fatal blow.

In other words, the end of the trip cycle appears to be well within touching distance.

And if easier economic conditions are ahead (meaning lower US yields), that should bode well for both gold and Bitcoin.