As BTC price cratered on news from Alameda-FTX and Genesis-Gemini, it decoupled from the S&P 500 and NASDAQ Composite. But after crypto exchange markets were priced in the news, they were ready to rally in stocks.
Due to the correlation of Bitcoin stocks, the price on crypto exchange markets moves into tandem with tech stocks like Tesla (NASDAQ: TSLA).
Jacques Gordon at Bespoke Investment Group said:
“It seems to me that bitcoin is moving more sympathetically with stocks/risk assets. The most interesting thing is that the bitcoin run is coming out of a very narrow range since the whole FTX saga too. The next few days will be a good test if we eliminate the December highs.”
This shows that even several colossal crypto startup failures are not enough to keep Bitcoin price low for long. But what it mostly reveals is that Bitcoin stock correlation is becoming a secular trend.
Bitcoin Stock Correlation Hits an All-Time High in December
The only question is how much will Bitcoin rise or fall against stocks over most time frames? And how long will this regime last – a few more months, years or decades?
Analysts at crypto data and information provider Kaiko wrote in a note earlier this month:
“(In 2022) bitcoin’s correlation with the S&P 500 both reached an all-time high and fell to a 15-month low. The lows were reached during the FTX collapse, while the highs appeared during the last week of December. This is the best proof yet that the macro is back.
Kaiko analysts suggested that the correlation is determined by the global macro interest rate environment. They noted that a year of central bank interest rate hikes has been the least supportive of risky assets like crypto and tech stocks in quite some time.
When will the S&P 500 and NASDAQ bear market end?
The fact that Bitcoin stock correlation dropped during the FTX crisis makes sense. This was a localized crypto industry event that significantly reduced crypto prices. So we can see the insolvency crisis period appearing in the Bitcoin stock correlation chart.
But the fact that it not only recovered but hit an all-time high afterwards indicates two things: it indicates that Bitcoin will easily ignore FTX’s collapse.
This passed through the correlation charts practically like a blip. So it’s broadly bullish and long-term for Bitcoin. Markets understand that the scandal was Alameda-FTX, not Bitcoin.
What it also tells us is that the Bitcoin macro connection is now a solidified fact of our financial reality. With these many months of correlation tightening, which could have been even tighter if not for the insolvencies this year, Bitcoin price and equity levels seem inseparably correlated.
Bitcoin is primarily a macro investment. When interest rates are high, capital flows to loans for the rate. When low, it shuns traffic and seeks returns from risky assets like stocks and crypto.
So the big question is when will the bottom be hit for the S&P500? The lowest Bitcoin price will likely be somewhere near there. No one can be sure, but the average time the S&P 500 has been in historical bear markets is 13 months. If this is true for today’s market, it means around 2023.
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