Crypto has had a rough start to the year. The Bitcoin price has fallen and risen multiple times over the last few months. Investors who thought Bitcoin price would have no correlation with traditional markets have been proven wrong. Bitcoin appears to be tracking the Nasdaq, implying that large investors are making the same tech stocks decisions: sell Facebook, sell Bitcoin.
Is Bitcoin Dissociating from Tech Stocks?
Bitcoin has lost 12.9 percent against the dollar in the last month. The Invesco Nasdaq ETF (QQQ) has lost 10% of its value. Bitcoin appears to be a more beta version of the QQQ.
For much of 2019, Bitcoin and the Nasdaq were neck and neck. At the start of the pandemic, Bitcoin began to pull away in 2020 as investors expected a market meltdown and looked for other places to deposit their money. Bitcoin has risen 320 percent in the last two years, compared to a respectable 56 percent for the Nasdaq.
Bitcoin’s Dissociation from tech stocks would be ‘an enormously promising indicator’ for it to recoup from its losses this year. Inflation in the United States rose to 7.5 percent in January, remaining at a 40-year-high, indicating that rising pressure on consumer prices is unlikely to abate anytime soon and increasing pressure on the Federal Reserve to act.
As we approach what many anticipate will be peak inflation in the coming months, investors will be looking for any signs that pricing pressures are lessening.
The market has been watching the inflation report for clues as to how aggressively the Federal Reserve would tighten monetary policy, with the central bank likely to start raising interest rates at its next meeting in March.
Meanwhile, cryptocurrency investors have been closely monitoring the correlation between Bitcoin price and technology stocks. Some Bitcoin price proponents said that the cryptocurrency might be used as a store of value and a hedge against inflation. However, the cryptocurrency has frequently traded in tandem with tech equities in recent months.
Bitcoin’s rapid popularity among businesses and institutions may be considered a Facebook or Google stock by money managers.
In the last few years, a lot of money has been moving into crypto from traditional markets. Traditional markets and cryptocurrency marketplaces have collided at that time. Various metrics show that tech stocks and Bitcoin are currently strongly connected.
That means that the same variables that cause tech stocks to fall, such as monetary policy, rising inflation, and waning demand for some important tech product lines — such as Facebook lately — can impact crypto sentiment. Across the board, there is a risk-averse attitude.
The latest market sell-off, which has affected Bitcoin, the Nasdaq, and the S&P 500, has prompted the usual bear market commentators to emerge. The end is never far away.
Aside from the rising pressure from the Federal Reserve’s interest rate hikes, which are expected to begin in March, and the dismal performance of tech businesses, BTC faces an uphill battle to break the macro decline that began in November 2021. A declining channel pattern has thwarted every attempt by the bulls to get BTC back over $39,000. The chart below shows the descending channel pattern that BTC must break to resume its uptrend.
Still, while Bitcoin tracks the market for a short time, the crypto investing market is maturing, which is good news for ordinary cryptocurrency investors. Investors are getting more sophisticated and considering the long term. Institutional investors and ordinary ‘hodlers’ (not a typo) are less inclined to trade cryptocurrency like they’re at a Macau casino.
Following its rebound from September to November last year, Bitcoin has become one of the most popular investment items, with gains of almost 60%. Some businesses believe that investing in crypto is safer than investing in IT stocks. It all relies on the amount of money invested.
While Bitcoin price ROI has been higher than that of tech stocks over the long term, the two investment products have marched in lockstep over the last year.
The stronger correlation could be attributed to the impact of interest rates and inflation concerns, which have impacted both the stock and crypto markets. The maturing Bitcoin market and BTC’s evolving narrative as an asset class, on the other hand, could have pushed the correlation higher.
Despite the greater ROI, Bitcoin price in USD has decreased over the last few months. Furthermore, increased volatility and linkage with traditional assets may work against the top coin.
