The alpha cryptocurrency has recently reached a new peak correlation ratio with S&P 500 (Standard & Poor’s) stock market index, an equity index maintained by Wall Street. The new correlation ratio has risen to 0.49, with the highest preceding record achieved sometime in October 2020.
Analysis came from Arcane Research, the research arm of Arcane Crypto, a crypto investments firm based in Stockholm, Oslo, and London founded by Torbjørn Bull Jenssen. According to Arcane Research, the 90-day correlation is effectively a new peak that shows and unprecedented rise in BTC (Bitcoin) price and value over its history.
“Bitcoin’s correlation to the S&P 500 has only been higher for five days in BTC’s history, showing that the current correlation regime is unprecedented in BTC’s history,” according to Arcane Research’s weekly newsletter published on Tuesday.
Bitcoin has been considered an asset investment that is open to risk due to its proximity and sensitivity to stock market movements, compounded by concerns that regulatory restrictions imposed by the U.S. Federal Reserve may further push the crypto market and by implication the U.S. economy into an incoming recession.
Yield curve insights from the U.S. Treasury has brought about this renewed strength in the correlation, representing a 10-year and 2-year yield is now down to 20 basis points short of inversion before it becomes negative. These statistics are often considered as a marker or indication of incoming recession characteristics in a market.
The idea that crypto, and Bitcoin, by extension, are enough of a response to market fundamentals such as hyperinflation, creates a tension between the belief that Bitcoin itself can be used as a hedge against inflation, as some firms like MicroStrategy are doing. However, the new data set also indicates that Bitcoin and crypto are either reacting or responding to the rise in equity prices as a result of continued cash flows and buyer demand.
Amid a depreciating U.S. dollar and the purchasing power of related fiat currencies, Bitcoin has posted an 8% upturn since the Federal Reserve has implemented a raise for benchmark interest rates by 25 basis points (equal to 0.25 percentage points), the first of its kind since at least 2018. On the other hand and in comparison, the S&P 500 index rose by 6% after the hike, while the Nasdaq index went on to rally up to 8.7% as of last week.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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