Bitcoin’s Correlation With Nasdaq Affects Hedging Appeal

(Bloomberg) — A familiar tune was playing in the market on Friday: Tech stocks staged a mini-bounce, and at almost exactly the same time, Bitcoin also reversed course, highlighting the cryptocurrency’s tendency to move in tandem with other risk assets.

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The world’s largest digital token was up 0.6% on Friday at 10:57 a.m. New York time. Market veterans may not have been surprised to see that the Nasdaq, which has a heavy weighting of big tech companies, also rose.

“Bitcoin is following the usual short-term pattern, which is a relatively high correlation with the Nasdaq and other tech stocks,” according to Matthew Sigel, head of digital asset research at VanEck.

Virtually all week, cryptocurrencies have gyrated the same way as tech stocks, with both sets of assets under pressure as the Federal Reserve tightens its policy.

Marko Papic, chief strategist at Clocktower Group, agrees. Bitcoin “is a high beta risk asset,” he said, adding that “in an environment where the Fed is getting more restrictive, you really don’t want to own high beta risk assets.”

The 100-day correlation coefficient for the currency and the Nasdaq 100 now stands at 0.40, one of the highest readings since 2011. (A coefficient of 1 means assets are moving in unison, while minus 1 would show that are moving in opposite directions).

“People are taking a step back and saying, What is bitcoin?” Victoria Green, founding partner and chief investment officer at G Squared Private Wealth, said by phone. “Bitcoin is showing much more of a tendency to follow and correlate with the Nasdaq and the market than with inflation and the uncorrelated currency.”

For most of its 13-year history, Bitcoin has enjoyed an environment of easy monetary policy and zero or negative interest rates. But both stocks and cryptocurrencies have been volatile of late, as the Federal Reserve prepares to withdraw the pandemic-era stimulus that had been in place for the past two years. Although there is no direct line between the Fed’s coffers and bitcoin buy orders on exchanges, there is a connection, according to analysts who say that less money in the system means fewer dollars are also pouring into cryptocurrencies.

“If this continues in terms of correlation, we think cryptocurrencies could lose their appeal as a hedge and we are starting to see that right now,” said Anderson Lafontant, senior forward planning advisor at Miracle Mile Advisors.

Original Note:

Bitcoin’s Rising Correlation With Tech Weighs on Hedge Appeal