Bitcoin is on the rise – but cryptocurrencies are still not decoupled from stocks

As the bitcoin price topped $26,000 on Tuesday, cryptocurrency traders were quick to claim that the recent rally in the digital asset’s price marks a significant change in momentum.

Crypto Twitter is full of examples of users claiming that Bitcoin’s price hike is evidence of digital assets diverging from other risky assets like stocks, with some calling it the “great disconnect”.

For most of the past year, digital assets and stocks have traded in similar directions, amid an economic slowdown and tightening monetary conditions spurred by a series of aggressive interest rate increases by the Federal Reserve.

Although cryptocurrencies are rallying in the short term, it is too early to say that the asset class correlation has broken, given that the Fed’s monetary policy stance remains a key factor in the current markets, said Decrypt Nauman Sheikh, CEO of Wave Digital. Asset.

“I wouldn’t say the link was broken,” he said. “[Los traders están] Focus on the idea of ​​breaking up because everyone is looking for a reason for space to recover.”

Although bitcoin is up 56% since the start of this year, compared to a 9.6% rise in the Nasdaq Composite and a 2% drop in the S&P 500, the correlation between cryptocurrencies and stocks remains clear.

“I would say it is still very early days where I would initially expect all risk assets to move in tandem if the Fed pivots,” Lucas Otomuru, director of research at IntoTheBlock, told Decrypt. “But after a few weeks it can start to become less relatable as the overall headwinds recede.”

According to IntoTheBlock’s correlation matrix, Bitcoin’s correlation with the Nasdaq and S&P 500 has increased in the past week, from -0.23 and -0.28 to 0.24 and 0.33, respectively.

Correlations are often calculated so that a value of 1 indicates that two things are always moving in the same direction, and a value of -1 means the opposite.

Although Bitcoin’s correlation with the S&P 500 and Nasdaq remains positive, the metric has been declining since January 31, when Bitcoin’s correlation with the S&P 500 was 0.85 and 0.92 with the Nasdaq.

Otomoro said the recent rally in digital asset prices has been driven in part by events like Tuesday’s inflation report and the possibility that the Federal Reserve will pause interest rate hikes after the Silicon Valley bank crash last week, events that also favored stocks.

“Big news like the CPI print was reflected in both asset classes,” he said. “The fact that cryptocurrencies are going further down the risk curve disproportionately benefits them.”