Bitcoin is popular among investors as a hedge to inflation and tumbling stock prices due to its historically low correlation to equities markets. However, the digital asset is starting to display some uncanny correlation to stocks.
BTC and the crypto space as a whole started experiencing losses since the Sep. 3 stock markets meltdown. That crash spared few assets, with Tech stocks experiencing the brunt of the market meltdown.
The tech-savvy Nasdaq Composite slipped by as much as 6%, while Apple, Microsoft, and Amazon dipped by 8%, 7%, and 6% respectively.
Surprisingly, traditional and non-traditional hedges weren’t immune from the sell-off. BTC tumbled by more than 6% on the day while gold traded down by 1%.
On Sep. 10, BTC showed more correlation with the S&P 500 index, which plunged by 5.3% on the day. That slip in the stocks markets mirrored BTC’s price, which dipped below the strong support base at $10K.
These correlations prompted on-chain analytics firm glassnode to acknowledge that BTC investors must remain aware of stock movements.
BTC Rebounds along with Stock Market
This interesting correlation between BTC and stocks has carried on in recent days, as highlighted by yesterday’s rally in the legacy market.
Stocks rose across the board on Monday, with the Dow and S&P 500 gaining 327 and 42 points respectively. Tech stocks also rallied higher, with the Nasdaq Composite gaining 203 points. Tesla stock was the biggest contributor to this growth as it added 48 points to the Nasdaq index.
The BTC price has replicated rebounding stocks to jump up by over 5% in the past 24 hours. At the time of writing, the king coin has broken the $10,700 resistance against the US Dollar.
The BTCUSD pair currently trades at $10,717 and looks set to rally in tandem with recovering stocks.
BTCUSD chart by TradingView
Julian Bridgen, the co-founder research firm MI2 Partners, pointed out the Correlation between BTC markets and the Tesla stocks.
He tweeted that Tesla’s price action mirrors Bitcoin’s price from 2016 to 2017 when the king coin was in a classic bubble market.
Is the Historically Low Correlation Fading?
The historically low correlation between stocks and BTC failed to play out during the sep.3 crash.
This rare occurrence indicates that the digital asset tends to get liquidated by investors during vulnerable periods of the global economy. In this way, BTC remains similar to tech stocks and other risk-on assets.
Looking ahead, there is a macro factor that could cause legacy markets to shoot up, according to Alex Kruger, a macro crypto analyst, and economist.
A rebounding stock market is bullish for BTC, given the correlation seen between the two asset classes.
That said, institutional investors still have faith in BTC as a hedge against inflation despite mirroring stock movements in recent weeks.
Case in point, giant investment firm MicroStrategy allotted $250M of their strategic capital into Bitcoin on Sep. 14, 2020.
The company asserted that BTC and other alternative investments would serve to hedge their client’s portfolios against inflation.