Bitcoin’s Recent Rally Underscores the “Low Correlation” of Crypto with Traditional Assets: Expert

Ruholamin Haqshanas
Last updated: | 2 min read
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Bitcoin (BTC) has displayed resilience by surging to a more than 19-month high, even as global markets experienced a downturn. 

The cryptocurrency climbed 5.8% to reach $42,000 on Monday and maintained its position just below that level in morning Asian trading on Tuesday. 

In contrast, global shares and bonds have been struggling with losses since the beginning of the week. 

This divergence highlights the current low correlation between cryptocurrencies and other traditional macro assets, Sean Farrell, the head of digital-asset strategy at Fundstrat Global Advisors LLC, told Bloomberg

Throughout 2023, Bitcoin’s correlations with stocks and gold have diminished as specific factors within the crypto market propelled a remarkable 152% surge in the value of the largest digital asset. 

One of the key drivers behind the gains is the anticipation that the United States will approve its first spot Bitcoin exchange-traded funds (ETFs), potentially expanding the demand for the token.

The 90-day correlation coefficient between Bitcoin and MSCI Inc.’s global shares index has declined from 0.60 to 0.18 since the start of the year.

A similar analysis of the token and spot gold reveals that the correlation figure has dropped close to zero from 0.36. 

A correlation coefficient of 1 indicates assets moving in tandem, while minus-1 signifies opposite movements.

Regulation Impacts Crypto Market in the US

Regulation is another significant factor that has influenced the crypto market. 

Executives in the industry are becoming increasingly optimistic that the worst of the US crackdown on the sector is behind them. 

Recent events, such as the imprisonment of Sam Bankman-Fried for fraud at FTX and the hefty fines imposed on top crypto exchange Binance and its founder Changpeng Zhao for US anti-money-laundering and sanctions violations, have instilled the belief that US authorities and regulators have already expressed their stance. 

This has raised hopes for more constructive dialogues between regulators and industry participants.

It is worth noting that technical indicators, including the 14-day relative strength index (RSI), suggest that Bitcoin’s rally may have become overextended, with the index at 75 above the 70 overbought level.

However, speculative interest persists due to predictions of the Securities & Exchange Commission granting approval for US spot Bitcoin ETFs by January. 

Additionally, investors have taken encouragement from bets on future interest-rate cuts by the Federal Reserve.

Online brokerage Robinhood Markets reported in a Monday filing that its notional crypto trading volumes in November were approximately 75% higher than October levels. 

Likewise, shares of public crypto companies listed in the US have experienced a surge amid soaring BTC price.

On Monday, popular crypto exchange Coinbase saw a 7.3% surge before the market opened. 

Despite reporting a decline in third-quarter trading volumes, the stock enjoyed a remarkable increase of nearly 62% in November.

Microstrategy, a prominent bitcoin investor that acquired bitcoins worth $593 million the previous month, also experienced an 8.2% gain.