Bitcoin Slips as Stocks Rise, Sparking Speculation Over Correlation

BTC’s 30-day correlation with stocks drops to the lowest point since January. The U.S. Federal Reserve’s aggressive interest hikes are “likely priced in,” a researcher says.

AccessTimeIconOct 18, 2022 at 8:05 p.m. UTC
Updated Oct 18, 2022 at 8:14 p.m. UTC

Crypto markets were lower in U.S. midday trading, underperforming stocks as the correlation between bitcoin and the Standard & Poor’s 500 Index fell to the lowest point since January.

The CoinDesk Market Index fell by 1.6% over the past 24 hours. Bitcoin (BTC), the largest cryptocurrency by market value, was down 1.7%, changing hands in a range between $19,300 and $19,700. Ether (ETH), the second-largest by market capitalization, followed a similar trajectory, down 2% to about $1,300 as of press time.

For most of this year bitcoin has traded in sync with stocks as the Federal Reserve tightened monetary conditions as part of a campaign to bring down soaring inflation – putting downward pressure on prices for risky assets including stocks and cryptocurrencies.

Recently, the strong correlation has faded, and digital-asset analysts are wondering whether cryptocurrencies might be decoupling from stocks.

According to IntoTheBlock, a crypto data and analysis firm, the 30-day correlation between bitcoin and the S&P 500 has fallen to 0.04 – basically nothing because a correlation near 0 suggests no price linkage whatsoever.

The S&P 500 rose 1% on Tuesday, buoyed by earnings news, including a better-than-expected profit report from Goldman Sachs. The Wall Street firm’s shares jumped 3% on the news, according to Reuters.

The recent episodes of price divergence are “making crypto investors wonder if the nascent asset class has decoupled from top indices,” said Iakov Levin, founder and CEO of crypto investment platform Midas Investments.

Traders in both crypto and traditional markets remain acutely focused on the Federal Reserve’s interest rate hikes, speculating on how aggressively the U.S. central bankers will keep ratcheting rate higher over the rest of this year.

Last week, a hotter-than-expected inflation report whipsawed bitcoin’s price along with stocks.

Based on trading in federal funds futures on the CME exchange, there is a 95% chance of a 75 basis point (0.75 percentage point) rate hike at the Federal Reserve’s next monetary policy meeting in November – triple the more typical increment of 25 basis points in prior interest rate cycles.

Lucas Outumuro, head of research at IntoTheBlock, said that the Fed's aggressive interest hikes are now “likely priced in,” and the prolonged uncertainty over the Russia-Ukraine war “seems to be ameliorating.”

If stocks continue surging, bitcoin might reverse course and trade higher, Midas Investments’s Levin said.

Even so, he said, “Investors in both worlds are still very cautious of the market per the headwinds that are still ahead.”

Further clues as to whether bitcoin is decoupling from stocks might come next week, when a slew of additional companies are scheduled to publish quarterly earnings.

“It's still too early to call for the end of the highly correlated regime, but investors are likely to get a better feel for this following the Microsoft, Google, Apple and Amazon earnings release next week,” said Outumuro.


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