As we know, different cryptocurrencies are highly correlated. Bitcoin’s relationship with stocks is an interesting one to track. Over the last eighteen months, correlations have been high due to a rapid interest rate tightening cycle. This kept liquidity out of the economy, and risk assets such as Bitcoin were heavily impacted.
In comparison to the Nasdaq, Bitcoin’s correlation persisted, except for a few occasions. These were due to crypto-specific collapses, such as Luna, Celsius and FTX. However, a bigger deviation came in June when regulators cracked down on the industry. This saw the Nasdaq’s correlation with Bitcoin drop to a five-year low.
The correlation has since picked up again, as the market anticipated the majority of interest rate hikes were in the past. Going forward, the relationship may change as liquidity is no longer being pulled off the table.
The correlation between Bitcoin and gold is also worth noting. Over the past year, it had increased significantly, but has since fallen sharply in the last month. If Bitcoin is to become a store of value, it must become less correlated with stocks and closer to the way gold trades.
Given Bitcoin has only been around for fourteen years, and has only traded with reasonable liquidity for far less than that, it is still finding its feet. However, the end of the interest rate tightening cycle gives the market an opportunity to observe how Bitcoin and other risk assets move relative to each other.
