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How Strong Is the Link Between Stocks and Bitcoin?
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Bitcoin
fell on Friday, and so did the stocks. The world’s largest crypto reported losses for the week, as did stocks. Could it be that the two are inextricably linked?
Bitcoin fell below $22,000 on Friday. The steep drop came just days after the token surged above $25,000 in a rally from a June selloff.
Stocks fell as investors grappled with uncertainty over the pace of rate hikes by the Federal Reserve as the central bank works to cool inflation. The
S&P 500
fell 1.2% for the week and the technology-heavy one
Nasdaq Composite
fell 2.6%.
Stocks, like Bitcoin, have moved down from June lows. But with stocks again trading lower and Bitcoin on the back foot, Barron’s experts asked if there was a connection between the two.
“[Bitcoin’s moves] definitely follows the market. There’s no question, and that’s been especially true on days when the market has been down a lot,” Tom Essaye, founder of Sevens Report Research, told Barron’s. “When the markets went up, Bitcoin went up more. Now the markets are going down and Bitcoin is going down a lot more.”
Essaye said he expects Bitcoin’s price to move in line with stocks as the Fed moves forward in its rate-hiking cycle and as Wall Street debates the possibility of the central bank achieving a soft landing for the U.S. economy.
“If this is indeed a bear market rally, Bitcoin is not done going down, just as stocks are not done going down. And if this is not a bear market rally and the Fed achieves a soft landing, Bitcoin will likely rise significantly from where it is now, but we’ll just have to wait and see, Essaye added.
Oanda’s senior market analyst, Craig Erlam, said Barron’s there has been a correlation many times this year between Bitcoin and the stock market, especially seen in the Nasdaq and high-growth tech stocks. But on a day-to-day basis, Erlam said Bitcoin and the markets have behaved differently.
“There have been times when Bitcoin has actually been much more resilient than the stock markets, when the stock markets have been down, and Bitcoin has been treading water.” Erlam said. “I feel like it came a little quicker as well, so I don’t feel like the relationship has been quite as strong in recent weeks as it has been for the vast majority of people this year.”
Erlam added that the fall in the stock market on Friday may be a contributing factor to the drop in the price of Bitcoin, but the magnitude of the decline is “incomparable.” He believes “we’re probably looking at something transactional that hit the Bitcoin price pretty significantly.”
Siddharth Singhai, investment manager at IronHold Capital, told us Barron’s that it’s almost impossible to know why Bitcoin was down, but with uncertainty about future Fed rate hike decisions, it could be a “sentiment-driven decline, where people aren’t comfortable enough and move more to risk-free assets, like T-bills.”
Regardless of whether experts agree that Bitcoin’s decline was caused by a fall in stocks, both Essaye and Erlam said that the “crypto winter” is not over yet.
“You can’t say crypto winter is over until we know what’s going to happen to the economy,” Essaye said. He added that “Bitcoin is no different than anything else. It’s waiting for the solution of what’s going to happen to the economy, and nobody knows.”
Write to Angela Palumbo at [email protected]
