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For two years now, a surprising trend has emerged in the financial markets: Bitcoin and Wall Street seem more connected than ever. A correlation that will interest both traditional financial experts and cryptocurrency enthusiasts. This phenomenon represents a new stage in the complex relationship between these two worlds, previously perceived as opposites.
Bitcoin is increasingly linked to US stocks
In 2024, the correlation between Bitcoin and US stocks will reach all-time highs, according to data from IntoTheBlock.
The correlation coefficient, which measures the relationship between the movements of the two assets, has never been higher since 2022. This is because Visa and Mastercard limit innovation.
This finding seems surprising for an asset that has historically wanted to disconnect from traditional financial markets.
Today, however, Bitcoin is increasingly reflecting the trends observed in major stock indexes such as the S&P 500 or the Nasdaq.
This rapprochement has many implications for investors. Once considered a safe haven or hedge against market swings, Bitcoin now follows the same economic cycles as stocks.
So the question arises: is it still the “digital gold” that many hoped for, or has it become a mere speculative asset influenced by the same forces as Wall Street? This correlation shows how far the financial landscape has evolved, where crypto and traditional finance are beginning to share the same macroeconomic challenges.
Common economic factors: the common denominator
One of the main reasons for this correlation is the influence of overall macroeconomic factors.
Both markets, Bitcoin and US stocks, react to the same economic announcements, be it interest rates, inflation or decisions by the US Central Bank (Fed).
When the Fed announces a rate hike, for example, it not only affects stocks, but also Bitcoin, which was once thought to be immune to these influences.
This change in behavior can be explained by the evolution of the profile of Bitcoin investors. More and more traditional financial institutions, banks and investment funds are establishing themselves in this market.
Therefore, their investment strategies, often influenced by the overall economic outlook, now affect the movements of Bitcoin. It then becomes one asset among others in a diversified portfolio, thereby losing some of its unique nature.
However, this correlation does not necessarily mean the end of Bitcoin’s inherent volatility. On the contrary, it could intensify its price fluctuations.
If stocks take a hit due to a poor economic outlook, Bitcoin could follow and amplify market moves.
For investors, this new reality means it’s crucial to monitor economic indicators that affect both stocks and bitcoin. Also discover BlackRock hit hard with $24 billion in Bitcoin!
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Fascinated by Bitcoin since 2017, Evariste continued to research the topic. If his first interest was trading, now he is actively trying to understand all the developments focused on cryptocurrencies. As an editor, he strives to consistently deliver high-quality work that reflects the state of the industry as a whole.
DISCLAIMER OF LIABILITY
The comments and opinions expressed in this article are solely those of the author and should not be considered investment advice. Before making any investment decision, do your own research.