Stocks and Crypto Correlation Shows Signs of Weakening

Indexes of major US stocks and crypto have ceased moving in tandem, for now.

A faltering connection between the pair could hint at the waning impact of macroeconomic factors on digital assets, including ongoing rate hikes and creeping inflation.

Diverging from a close correlation established last month, the relationship between the two asset classes has dropped to its lowest point in three months, IntoTheBlock data show.

As measured by a 30-day correlation coefficient, data on the performance compared to that of bitcoin show a reading of between -0.1 and -0.3 across the tech-heavy Nasdaq 100, the S&P 500 and the Dow Jones Industrial.

Bitcoin finished 0.2% down on Monday at $23,500 after rallying 3% to $24,000, then conceding most of the day’s gains. US indexes, meanwhile, finished between 0.2% and 0.6% higher, buoyed by a rebound in fast-growth tech firms following a disastrous last week.

A coefficient of 1 indicates a strong positive correlation between the two prices, while a coefficient of 0 suggests no correlation. A posting of -1 implies a strong negative correlation, where the prices of bitcoin and a given asset tend to move in opposite directions.

Throughout 2022, crypto and US equities had largely tracked their performance to each other and had not dipped into negative territory until the collapse of FTX in November, data show. 

By late December, the correlation began to recover from its lowest print in over two years before reaching local highs in late January — a correlation not seen since early September 2022.

Although liquidity is still circulating in the US equity markets, crypto investors are cautious and capital is drying up, Sylvia To, research lead at crypto exchange Bullish told Blockworks. That, in turn, is prompting market makers post-FTX to reinforce their counter-party risk frameworks.

“Liquidity is rather thin in crypto at the moment so it doesn’t take much to move markets,” she said. “We’ve seen a series of shorts liquidated in the past few weeks driving that rebound in BTC/USD with strong support past that $20,000 zone.”

It comes as the number of bitcoin whales has dropped to its lowest point in three years to 1,663, Glassnode data show. That figure was slightly lower than last week’s recording of 1,664, hinting at a decline in the number of large bag holders.

According to Glassnode, the metric can be interpreted as a positive sign for the crypto as it may point to ownership becoming more decentralized.

Bitcoin whales by Glassnode’s standards are individuals who hold more than 1,000 BTC and can potentially shift markets due to their ability to buy or sell large amounts of the asset at once.

The amount of bitcoin currently being held or lost, as opposed to being actively traded or used for transactions, also hit its highest point in five years above 7.6 million BTC, Glassnode data show.

The figure suggests that a large amount of bitcoin is currently being held for the long term or is not accessible, which is typically seen as a bullish sign.