The positive correlation between the price of Bitcoin and US stock prices, which reached an all-time high in 2022, is beginning to fade. Bitcoin proponents hope this decoupling bodes well for Bitcoin, as it could mean that the current US stock market struggles could become less of a constraint for the market’s premier cryptocurrency.
According to a graph presented by CoinMetricsthe 60-day Pearson correlation between the price of BTC and the closing price of the S&P 500, the benchmark for the US stock market, fell to its lowest level since April 2022, at 0.30, in beginning of the week.
The correlation had reached an all-time high of 0.667 in September 2022, after rising sharply earlier in the year as cryptocurrency and equity prices crashed in concert amid concerns about a stronger-than-expected rise in inflationary pressures in the United States and the consequent tightening on the part of the Federal Reserve American.
The decline in the correlation between the two asset classes follows the impressive rally in cryptocurrency since the start of the year. Bitcoin was up around 35% on the year, while the S&P 500 posted a much more modest 4.0% gain.
Could a lower correlation to equities mean the bear market is over?
Bitcoin’s high correlation with US equity markets in the second half of 2022 was a clear feature of the ongoing bear market which, at its November low, saw BTC lose up to 77% from its 2021 highs. at $69,000.
Prior to that date, the 60-day Pearson correlation between Bitcoin and the S&P 500 had only reached 0.3 on a few occasions, and had frequently fallen below zero. The few years leading up to 2022, when the correlation between Bitcoin and US equities was much weaker, were characterized by significant price gains.
Bitcoin has gained more than 2,000% from its 2018 low just above $3,000 to its 2021 highs. Bulls are hoping for a weaker correlation between Bitcoin and stocks, as was the case between the end of 2018 and the end of 2021, is an indicator of an upcoming bull market.
Equity investors fear that the FED’s aggressive efforts to rein in U.S. inflation, which currently remains stronger than expected, could lead to a deeper recession and hurt corporate earnings later in the year, which would hurt a further blow to equity valuations which have already been dented by the rise in the risk-free interest rate (i.e. rising US government bond yields).
This is why many are not betting on a short-term rise in US stock prices to record levels. But a lower correlation could allow Bitcoin to rally this year, despite continued pessimism about the outlook for US equities. However, the decline in the price of BTC from its recent highs of over $ 25,000 paints a less encouraging outlook for Bitcoin: some on-chain indicators relating to the profitability of the Bitcoin market send a less optimistic signal on the next developments. of the world’s leading cryptocurrency by market capitalization. There are fears that Bitcoin will fall back below $20,000 in the near future.
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