Key Points
- Bitcoin’s correlation with tech stocks managed to reach the highest level since August 2023.
- After the coin was touted as an uncorrelated asset, ETFs triggered talk of Bitcoin being a growth asset now.
A new report from Bloomberg is addressing Bitcoin’s correlation with tech stocks which reached the highest level since August 2023.
Bitcoin has been long treated as a speculative investment during the run-up of the Fed’s last tightening cycle, slumping on expectations that higher interest rates would slow down the appetite for risk.
Optimism came into the picture again with the possibility that borrowing costs could soon become lower, and Bitcoin advocates are now saying that the digital asset is similar to shares of tech companies.
Bloomberg reported that the 90-day correlation coefficient of the coin and the tech-heavy NASDAQ 100 index reached 0.46 this week – this is the highest level since August 2023. A coefficient of 1 means that the assets are moving in lockstep, and a coefficient of -1 means that they’re moving in opposite directions.
In early 2022, the Fed began raising its target rate on loans between banks, and the correlation jumped to over 0.8. The number was the highest since the crypto burst onto the “mainstream consciousness,” as Bloomberg puts it.
A re-focus on Bitcoin as a growth asset
Bloomberg cited Joshua Lim, the co-founder of trading firm Arbelos Markets who said that now, people are seeing crypto as a growth asset or an asset that represents network value.
He continued and said that the ability of it being a technology and transfer of value mechanism also highlights the potential to become more correlated to other assets that are also growing a lot, such as NASDAQ and tech equities.
Now, Bitcoin is trading in tandem with stocks again.
Bitcoin was long seen as an uncorrelated asset, an asset that is not beholden to any government and it’s unlikely to be swayed by outside factors.
When Bitcoin was introduced to the world, back in 2008 by the anonymous person/group aka Satoshi Nakamoto, the goal was to create a decentralized currency that was out of the government and central banks’ control.
But, as time passed, it started to be seen as a digital version of gold, a hedge against inflation and a store of value. The price volatility undercut many of the narratives mentioned above, and the approval of the US Bitcoin ETFs in 2024 opened the door to new sorts of investors.
Bitcoin ETFs bring in new investor classes
Bloomberg cites the Chief Product Officer of CCData who said that since the beginning of this year, we’ve seen the S&P 500 and Bitcoin positively correlated. This is unusual and shatters the theory of BTC only being a sort of value.
He continued and said that this is the main reason for which we’re seeing such high prices at the moment, citing ETFs reaching a maturity point, and becoming some of the fastest-growing ETFs in history.
This is exactly what BlackRock’s CEO, Larry Fink, said about the company’s Bitcoin ETF, IBIT a while ago. He also mentioned his optimism regarding new waves and types of investors in crypto products such as pension funds and more.
Bitcoin managed to hit a new ATH this year, following the approval of the Bitcoin ETFs back in January, and the coin reached approximately $74,000.
At the moment of writing this article, BTC continues to trade above the important $66,000 mark, with a recent surge in price being triggered by a not-so-hot CPI report that showed an eased inflation of 3.4%.
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Bitcoin jumped approximately 58% in 2024, notes Bloomberg, compared to the 11% increase in the NASDAQ 100.
Lim continued and said that there were a lot of motivators for traditional allocators outside of crypto to turn their eyes to Bitcoin and start buying it.
Such factors are Bitcoin ETFs, the coin reaching a new ATH, and the important halving event that took place on April 20, slashing miner rewards.
These catalysts have passed and there’s an increased focus on the broader macro picture, he noted.
Fed’s potential rate cut would be great for crypto
Lim also made a reference to the Fed and potential rate cut, saying that this would turn out to be great for risk assets, including crypto.
CCData’s Winterflood highlighted how Bitcoin managed to maintain a steady growth since the launch of ETFs and it will be interesting to see what happens next.
He concluded by saying that it will be interesting to see whether Bitcoin will behave the same way as it previously did, like a risky asset, or it will start becoming an alternative asset viewed by traditional markets.
Optimism continues to remain in the crypto industry, even for Bitcoin miners who are facing dangers due to centralization.
