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Bitcoin continues to lose momentum on low time frames as bulls failed to follow yesterday’s upward momentum. The cryptocurrency was rejected around the mid-range of its current levels and may be headed for another retest of local support.
At the time of writing, Bitcoin price is trading at $20,000 with a 1% loss and a 3% gain in the past 24 hours and 7 days respectively. Despite its negative price performance, BTC remains relatively strong compared to other cryptocurrencies in the top 10 by market capitalization.
Bitcoin in record correlation with gold and stocks in 2022
Data from Kraken Intelligence shows that Bitcoin has increased its correlation with risky assets as well as with other traditional assets in the legacy financial market. This phenomenon has been common in 2022 as global markets react in tandem to the US Federal Reserve (Fed).
The financial institution has tried to slow inflation in the US dollar by raising interest rates. This has had a negative impact on all asset classes.
As can be seen in the charts below, the price of Bitcoin saw a decline in its correlation with the major stock indices, the Nasdaq 100 and S&P 500. In recent months, this correlation has been at its lowest point below 0.5, but is approaching the high correlation levels again around 0.8 and 0.74, respectively.
Something similar is happening with gold and US Treasuries. Unlike stocks, Bitcoin is less correlated to the precious metal and US Treasuries, but that appears to be changing in light of increasing economic uncertainty.
Earnings Seasons May Dampen Bitcoin’s Bullish Momentum
This data suggests that Bitcoin may become increasingly susceptible to events related to stocks and major indices. Jurrien Timmer, Macro director for investment firm Fidelity, believes the upcoming earnings season may present hurdles for traditional assets.
Timmer supports his theory about the recent rally in the US dollar, as measured by the DXY Index. This tool allows market participants to get an idea of the strength of the dollar compared to the Japanese yen, the British pound and the euro.
We see the same discrepancy in the chart below, when we compare the dollar rate of change with the expected EPS growth rate (NTM divided by LTM). Estimates should come down faster, it seems. /4 pic.twitter.com/G49jAMu0Y0
— Jurrien Timmer (@TimmerFidelity) October 6, 2022
The higher the DXY index, the weaker these other currencies, and by extension, other risky assets, such as Bitcoin. Timmer claims that 40% of S&P revenue comes from abroad, which could have a noticeable negative effect on the profit margins and earnings of US companies. The expert wrote:
Revenue growth is expected to fall to 4% and remain there. Given that the DXY’s rate of change is +19%, that seems too high. So, based on the dollar and the market breadth, we might get some negative earnings surprises.