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New data from KAICO on July 11 it shows The correlation between bitcoin and the Nasdaq Composite Index is at a two-year low. The correlation coefficient between these two assets dropped to less than 1% in early July.
At this level it is at its July 2021 low. The NASDAQ Composite Index tracks the performance of all stocks listed on the NASDAQ Stock Exchange. Coinbase’s COIN is among the stocks listed on this exchange.
The correlation between bitcoin and NASDAQ is coming to an end
A correlation coefficient of around 0% indicates a weak negative correlation between bitcoin and the NASDAQ. This implies that bitcoin price moved in the opposite direction or is uncorrelated with the NASDAQ Composite Index action.
As of July 10, bitcoin price was relatively stable, hovering around the $30,000 level and generally in an uptrend looking at price performance in Q2 2023. For context, bitcoin is less than $2,000 away from its 2023 high of $31,400 registered in June 2023.
Meanwhile, market data shows The NASDAQ Composite Index is also at a multi-month high and is strong, reflecting a broader market correction in the United States.
The decreasing correlation between bitcoin and the NASDAQ can be attributed to a number of factors. One possible explanation is that investors are becoming more discerning in their investment choices.
As the cryptocurrency market matures and regulations are drafted, investors may seek assets with lower correlations with traditional financial instruments such as stocks and indices.
The second reason may stem from the recent action in the cryptocurrency market. In 2022, cryptocurrencies, including bitcoin, declined from the highs registered in 2021. After peaking above $69,000, bitcoin price is set to crash in 2022.
This was fast-tracked by the solvency of several centralized finance platforms offering crypto services, including Celsius. The collapse of FTX, a popular cryptocurrency exchange, pushed prices even lower. In November 2022, BTC price dropped below $16,000.
Like crypto assets, tech stocks such as COIN listed on NASDAQ are relatively volatile and have also been affected by rising interest rates in 2021. Subsequently, a decline in asset prices would have forced investors to become more risk-averse and diversify their holdings, thereby forcing the correlation. Even less between NASDAQ and bitcoin.
Watch the US Federal Reserve
It remains to be seen whether this correlation will drop in the coming months. However, the cryptocurrency market is looking fragile at the moment. Bitcoin bulls have failed to surpass the June 2023 highs due to bullish pressure over the past few weeks.
Also, market participants closely monitor how the United States Federal Reserve will proceed with its monetary policy.
After a series of hikes in interest rates to combat rising inflation, the central bank is set to pause rate hikes in the second quarter of 2023. It remains to be seen whether they will cut rates in the coming months.
Feature image from Canva, chart from TradingView
