Bitcoin Sees Increasing Correlation With Equities But Remains Relatively Weaker: Bitfinex

Bitcoin’s correlation with the U.S. equities market has been rising for more than a month, as seen in the collective plunge and rally across different asset classes during the Japanese yen crisis earlier this month and the Federal Reserve’s statements at the Jackson Hole symposium last week.

According to the recent edition of the Bitfinex Alpha report, the Pearson Correlation metric, which measures the relative correlation of bitcoin (BTC) with the S&P 500 and the NASDAQ, shows an increase in the 30-day correlation between the assets. This rise began on July 12; however, BTC has been relatively weaker than the indexes since the August 5 capitulation low during the yen crisis.

Bitcoin’s Rising Correlation With Equities

Following Fed chair Jerome Powell’s statements at the Jackson Hole symposium on August 23, BTC, the entire crypto market, stock market indexes, and risk assets rallied significantly, continuing the recovery seen since early August. The surge could be attributed to Powell’s suggestion that the Fed was preparing to adjust monetary policy and cut rates. While risk assets rallied, the U.S. dollar index fell by more than 0.83%.

The S&P 500 index moved to 5461, 0.7% shy from its all-time high (ATH) and significantly recovering from the 8% decline during the yen crisis. Notable rallies were also recorded across other assets, including gold.

On the other hand, BTC saw a daily surge of 6%, its second-highest daily move since May 20. Analysts said the price jump signaled the return of risk appetite to the markets.

Room For Prices to Rally

Regardless of bitcoin’s rally, it has remained weaker than equities. This is evident in the S&P 500 reclaiming its August 1 high and monthly opening levels on August 15 and surging close to its ATH on Friday, whereas BTC only reached $65,000 on the same day. However, analysts said it is common for higher-volatility assets like BTC to move later than lower-volatility counterparts like equities.

Meanwhile, analysts said bitcoin is trading within the trajectory of past bull cycles. The market is exhibiting a risk-on sentiment, encouraged by the current absence of supply overhang and the imminence of rate cuts.

Additionally, there is a relatively lower number of leveraged longs in the market, which increases the room for BTC and altcoin prices to rally.