Macroeconomic trends are likely to create the perfect storm for cryptos. But the asset class actually doesn’t play by the rules.
Bitcoin and Ether stalled on Thursday after an early morning rally, falling about 4.8% and 4.7%, respectively.
Bitcoin (BTC) nearly broke $38,000 on Thursday but then fell into the red, effectively ending Wednesday’s rally. BTC is now down just over 2% for the week, but is still up almost 25% over the last 30 days.
Share prices also fell on Thursday, but recovered and were trading relatively flat at the time of publication. The S&P 500 and Nasdaq Composite indexes each lost as much as 0.5% early in the trading session before paring back their losses.
According to data from TradingView, Bitcoin’s correlation with the Nasdaq reached 0.51 on Thursday, a rebound after falling to -0.69 in late October. A coefficient of one means that the corresponding assets are in complete agreement, while a value of negative one signals the opposite.
Analysts say the decline in stocks is likely a correction to the rally sparked by Tuesday’s consumer price index (CPI) data release, which sent the S&P 500 up 2%.
“A 2% rally in the S&P 500 is usually only justified when we get a real, tangible and substantial positive surprise, but that hasn’t happened [Tuesday]said Tom Essaye, founder of Sevens Report Research. “What actually happened was that the CPI report likely ruled out the possibility of another rate hike, leading investors to expect much earlier (and much larger) rate cuts than previously expected.”
Bitcoin, which went from green to red and back again throughout the week, has stunned analysts.
“Bitcoin is starting to look like a rebellious teenager… which is actually fitting, considering its relative age and disruptive mission,” said Noelle Acheson, author of the Crypto is Macro Now newsletter. “But in the language of the market, his rebellion manifests itself in not reacting the way traditional lore says.”
Falling Treasury yields – the 10-year Treasury yield is down about 3% this week – coupled with confidence that the Federal Reserve will pause its interest rate hikes should be enough to push Bitcoin to the next important level, Acheson said. But that doesn’t seem to be the case.
Putting too many eggs in the macroeconomic basket tends to not be a good sign for crypto investors, Acheson said.
“Bitcoin can be moved by macroeconomic considerations,” she added. “Or it can be moved through ETF speculation. Or it can be influenced by a number of other factors. We can talk about “correlations” all you want, but they tend to be backward-looking and changeable.
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