A record Bitcoin stocks correlation in Dec after a sharp reversal during the FTX collapse should boost investor confidence in BTC.
While the BTC price cratered over Alameda-FTX and Genesis-Gemini news, it decoupled from the S&P 500 Index and NASDAQ Composite. But after crypto exchange markets priced in the news, they were ready to rally with equities.
Because of the Bitcoin stocks correlation, the price on crypto exchange markets moves in tandem with tech stocks like Tesla (NASDAQ: TSLA).
Jake Gordon at Bespoke Investment Group said:
“Seems to me that Bitcoin is moving higher in sympathy with stocks/risk assets. The most interesting thing is that the run in bitcoin is coming out of a very tight range since the whole FTX saga too. Next few days will be a good test if we take out the December highs.”
That shows even multiple colossal crypto startup failures aren’t enough to keep the Bitcoin price down for long. But what it especially reveals is that the Bitcoin stocks correlation is becoming a secular trend.
Bitcoin Stocks Correlation Surged to A Record High in December
The only question is how much more will Bitcoin rise or fall compared to equities over most periods? And how long will this regime last – some more months, for years, or for decades?
Analysts from crypto data and insights provider Kaiko wrote in a note earlier this month:
“[In 2022] bitcoin’s correlation with the S&P 500 hit both an all time high and dropped to 15-month lows. The lows were reached during FTX’s collapse, while the highs emerged in the final week of December. This is the best evidence yet that macro is back.”
Kaiko’s analysts suggested the correlation is driven by the global macro interest rate environment. They noted that a year of central bank interest rate hikes has been the least friendly to risk assets like crypto and tech stocks in a while.
When Will The S&P 500 and NASDAQ Bear Market End?
The fact that the Bitcoin stocks correlation dropped during the FTX crisis makes sense. That was a localized crypto sector event that drastically lowered crypto prices. So we can see the insolvency crisis period show up in the Bitcoin stocks correlation graph.
But the fact that it not only resumed but went to an all-time high afterward says two things: It indicates Bitcoin will easily shrug off the FTX collapse.
That passed by in the correlation charts practically like a blip. So that’s bullish overall and long-term for Bitcoin. Markets understand the scandal was Alameda-FTX’s, not Bitcoin’s problem.
What it also tells us is that the Bitcoin macro connection is now a solidified fact of our financial reality. With this many months of tightening correlation, which might have been even tighter without the insolvencies this year, Bitcoin price and equities levels seem inseparably correlated.
Bitcoin is a primarily macro investment. When interest rates are high, capital flows to lending for the rate. When they’re low, it flees tradfi and looks for yield in risk assets like stocks and crypto.
So the big question is, when will the bottom be in for the S&P500? The Bitcoin price bottom will likely be somewhere near there. No one can be certain, but the average amount of time the S&P 500 has spent in historical bear markets is 13 months. If it holds true for the current market, that means sometime in 2023.