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Bitcoin’s correlation with macro markets reached new highs in 2022. As a result, the price of the digital asset, and by extension the entire crypto market, closely followed the movement of the stock and stock market. There were predictions that the cryptocurrency would begin to decouple from the macro market over time, but data shows that the correlation still remains very high even now.
Follow the macro market
One of the most prominent ways the macro market and bitcoin correlation has been hinted at has been during key events such as the CPI data releases. The latest CPI data release came back with higher than expected rates and the crypto market had responded almost immediately. Looking at bitcoin alone, it would have been normal to conclude that the market was reacting independently, but in fact it had followed the macro market’s movement.
Currently, the correlation between bitcoin and the macro market is near multi-year highs, and so is bitcoin’s correlation with the gold market. This makes the cryptocurrency move along with the broader financial markets, despite the decentralized nature of the digital asset.
BTC correlation to macro markets wax stronger | Source: Arcane Research
Data shows that the correlation between the stock market and bitcoin has been stable at around 0.7 over the past month, marking a similar recorded trend between April and June 2022. If history repeats itself, there may be some reprieve as the correlation could drop just like it did then.
Behind the Bitcoin Stock Market Correlation
For the longest time, bitcoin and the crypto market could have grown without much of the implications of the stock market movements. However, this should start to change during the 2020 lockdown period, and companies stepping into the digital assets
BTC falls to low $19,000s | Source: BTCUSD on TradingView.com
Over the past two years, companies have bought tens of thousands of BTC to add to their balance sheets, with MicroStrategy holding more than 130,000 BTC alone. Because of this, the performance of these companies in the stock market began to spill over into bitcoin. The stimulus payments also gave investors some “free” money to put into the markets, leading to the inevitable pumping of both markets at the same time, and the crossover from companies to crypto only helped push the correlation further.
In the short term, this means keeping an eye on the macro markets is important for bitcoin investors. Last week’s downward correction was the result of macro markets adjusting to price in the expected November 2 FOMC hike. If the FOMC follows the path of the CPI data release, investors should brace for another price drop.
Featured image from Forbes, charts from Arcane Research and TradingView.com
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