Is Bitcoin really decoupling from stocks? Experts decide

There’s an ironic sense of humor in that Bitcoin was at times very closely correlated with traditional markets.

Bitcoiners generally prefer BTC not to have a high correlation with traditional assets like stocks and bonds. After all, one of the key takeaways of the world’s largest cryptocurrency by market cap — $379 billion as of this writing, according to CoinGecko — is that it bypasses traditional finance.

Therefore self-proclaimed Bitcoin Fans like Gemini co-founder Cameron Winklevoss are taking notice when it appears BTC has stopped tracking stocks and bonds.

“Bitcoin has been remarkably resilient over the past few weeks despite the stock market losing trillions in value,” he said tweeted earlier this week. “Don’t know if that’s the bottom, but there was an odd decoupling.”

Bitcoin has been remarkably resilient over the past few weeks despite the stock market losing trillions in value. Don’t know if this is the bottom, but there was an odd decoupling. Are people starting to reconsider the “disaster insurance” thesis?

— Cameron Winklevoss (@cameron) September 27, 2022

It’s true that Bitcoin has recently outperformed stock market indices, but analysts say there’s flimsy evidence a real decoupling has occurred.

Compared to last week, Bitcoin is up 3% while the Nasdaq 100 and S&P 500 are each down 1%. In fact, according to data from blockchain analysis company IntoTheBlock, this goes back as far as 90 days. Compared to three months ago, Bitcoin is up 1% while the Nasdaq 100 is down 3% and the S&P 500 is down 4%.

In addition, the current market slump must be compared to a time before the Federal Reserve’s Federal Open Market Committee (FOMC) implemented three consecutive historically high interest rate hikes, pushing lending rates to their highest levels since 2008.

Own blockchain data platform IntoTheBlock correlation matrix shows that Bitcoin is still fairly closely correlated with the Nasdaq 100 and S&P 500 – both at 0.7.

Calculating a correlation returns a value between -1, which would mean the two things being compared always move in opposite directions, or 1, which would mean they always move in the same direction.

In the first week of September, the correlation between Bitcoin and the two stock indices was significantly higher at 0.9.

“Correlations with stocks have actually come down over the past few weeks, but still remain quite high,” said Lucas Outumuro, head of research at IntoTheBlock decrypt.

Even if the correlation has weakened over the past month, there’s reason to believe it could pick up again, Outumuro said, citing “risks of falling liquidity due to rate hikes.” [quantitative easing] continue to put pressure on risky assets, including crypto.”

The pseudonymous Twitter user “Unusual_Whales”, who runs the options data platform of the same name, also told decrypt that it is too early to tell if bitcoin price action has stopped mirroring traditional markets.

“It can be a lead lag effect,” they said. “Hard to say given the market has changed so much even this week.”

That shift came from the Bank of England, which said on Wednesday it had begun aggressively buying bonds to stabilize markets after the government’s economic plans pushed interest rates higher and the British pound to unprecedented lows had sent since the 80s.

“The correlation between BTC and the S&P500 (SPY) has risen to all-time highs since March 2022 as both markets were impacted by FED actions and other macro events,” Nate Maddrey, who leads research at Coin Metrics, said decrypt in an email.

“Historically, BTC has not been highly correlated with the stock market, so it’s always possible for the tide to turn back towards a lower correlation. But at this point the data shows no significant detachment.”

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.

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