Is The Bitcoin Stock Market Correlation Finally Ending?
The correlation between the bitcoin price and the stock market has grown to new heights this year. As a result, the movements in the macro markets have had a major impact on the price of bitcoin, one of the reasons behind the recent price decline. However, as time has passed, bitcoin has worked to disengage from this high correlation. Current data shows that the cryptocurrency may have some success after all.
Factors Driving Bitcoin’s Decoupling
A number of factors have been behind the weakening of bitcoin’s correlation to the stock market. Some of these are quite obvious, while others remain a bit behind the scenes. Nevertheless, the end result has been the same.
The sale of Bitcoin miners has been one of the most prominent in recent times. With the drop in prices, miners have been forced to sell their holdings due to rising interest rates and rising energy prices.
Another factor was one of the largest public companies selling their BTC holdings. Tesla had held around 48,000 BTC, but had eventually sold 75% of all its holdings. This reduction in bitcoin holdings by large companies saw bitcoin’s correlation to the companies’ performance drop.
ETH open interest surpasses BTC | Source: Arcane Research
There has also been a decline in the funding crypto companies receive. As the market enters another extended bear market, these investments are expected to continue to decline. Add in increased capital costs and access to PE, and bitcoin’s correlation with the stock market has begun to weaken.
Stock market correlation down
In recent months, bitcoin has maintained a relatively constant correlation with the stock market. This has to do with performance, whether it outperforms or underperforms compared to shares. One of the most prominent evidences of correlation is the tendency to grow high when there are gains in the stock market. However, August has shown a different streak for both markets.
Usually, when the stock market registers some kind of gain, the price of bitcoin has responded by outperforming. But in the month of August, the Nasdaq is up 5.77% so far, while bitcoin has only seen a 2.67% rise for the month. This deviates from the natural trend of bitcoin posting higher gains compared to the Nasdaq, evidence that the stock market correlation is weakening.
BTC loses steam and falls to low $23,000 | Source: BTCUSD on TradingView.com
Another proof of this is bitcoin’s correlation to risk assets. As mentioned before, bitcoin’s correlation to these assets had reached an all-time high a few months earlier, but now it has started to fall. The correlation to risk assets is currently at 0.5-0.6 levels, and is now close to annual lows.
Despite this, the correlation to the Nasdaq is still relatively high. Arcane reports the current level at 0.55. So while there is definitely some form of weakness going on, it is still highly unlikely that these factors will be able to cause a complete weakness and disconnection from the stock market.
Featured image from Blockchain News, charts from Arcane Research and TradingView.com
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