Bitcoin correlation with macro markets hit new highs in 2022. As a result, the price of the digital asset, and therefore the entire crypto market, followed the movement of the stock and stock market very closely. There were predictions that the cryptocurrency would decouple from the macro market over time, but the data shows that the correlation is still very high even now.
Follow the macro market
One of the most prominent ways the macro market and Bitcoin correlation has shone through has been through major events such as the release of CPI data. The last CPI data release came back at higher than expected rates and the crypto market had reacted almost immediately. Looking only at Bitcoin, it would have been normal to conclude that the market reacted independently, but it had actually followed the movement of the macro market.
Currently, the correlation between bitcoin and the macro market is near multi-year highs, as is bitcoin’s correlation with the gold market. This has resulted in the cryptocurrency moving in tandem with the broader financial markets, despite the decentralized nature of the digital asset.
BTC correlation to macro markets getting stronger | Source: Arcane Research
The data shows that the correlation between the stock market and Bitcoin has been stable at around 0.7 for the past month, showing a similar recorded trend between April and June 2022. If history were to repeat itself, there could be a respite as the correlation could descend like it did then.
Behind the Bitcoin exchange correlation
For a long time, Bitcoin and the crypto market have been able to grow without much impact from stock market movements. However, that would change during the 2020 lockdown period and companies would jump into the digital asset
BTC falls to low $19,000 | Source: BTCUSD on TradingView.com
Over the past two years, companies have bought tens of thousands of BTC to bolster their balance sheets, with MicroStrategy alone holding more than 130,000 BTC. In light of this, the performance of these companies on the stock exchange had started to spill over into Bitcoin. The stimulus payments also gave investors some “free” money to invest in the markets, leading to the inevitable pumping of both markets simultaneously, and the transition from corporates to crypto is only helping to push the correlation further.
At least in the short-term, this means it’s important for Bitcoin investors to keep an eye on the macro markets. Last week’s downward correction was a result of the macro markets adjusting to the price in the expected FOMC hike on Nov. 2nd. If the FOMC goes the CPI data release route, investors should brace for another fall.
Featured image from Forbes, charts from Arcane Research and TradingView.com
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