Bitcoin Decouples from Stocks as Regulatory Crackdown Looms

• The Nasdaq is up 10% in the last month while Bitcoin is down 9%, showing a break in correlation between the two.
• This marks the lowest point of correlation since 2018, surpassing what was seen during the FTX collapse when Bitcoin fell to $15,000.
• The US Federal Reserve’s decision to pause interest rate hikes has had a positive effect on stocks but not on Bitcoin.

Breakdown of Correlation Between Bitcoin and Stocks

The US Federal Reserve recently paused its rate hiking policy, creating positive movement in stock markets over the past month. The S&P 500 is up 6% and the Nasdaq is up 10% in this time frame, both now only 8.8% and 15% off all-time highs respectively. However, surprisingly, Bitcoin has not benefited from this surge and is instead trading below $25,000 for the first time in three months.

Analysis of Previous Correlation

Head of Research Dan Ashmore conducted a deep dive into Bitcoin’s relationship with stocks earlier this year which showed that it tends to move together with the stock market. This was especially evident at the start of 2022 when both were experiencing bear markets at similar levels before beginning their respective recoveries. Two episodes stand out: November 2022 when Bitcoin fell but stocks surged as well as this past month where stocks have been flying but not so much for cryptocurrency prices.

Lowest Point Since 2018

This current break in correlation between crypto and stocks has resulted in its lowest point since 2018; even surpassing what was seen during November 2022 amid the FTX collapse when Bitcoin fell to $15,000 while stocks increased off positive inflation readings.

Regulatory Crackdown Effects

The US regulatory crackdown on cryptocurrencies may explain why they have not benefited from recent stock market gains as investors remain wary about digital currency’s future prospects in America due to uncertainty around regulations and government policies.

Conclusion

It remains unclear how long this low correlation between crypto assets and stocks will remain or if it will eventually return back to its previous level as we saw throughout most of 2022; however for now, there appears to be a clear divergence between these two asset classes that investors should keep an eye on going forward.