Viewpoint: The correlation between cryptocurrency and US stock market and macro events is weakening

According to reports, Bernstein analysts said that the correlation between cryptocurrency and US stock market and macro events was weakening, and the cryptocurrency market seemed to be between long and short, waiting for “any further catalyst”. The sensitivity of the encryption market to the traditional market is no longer the same as in the past. The correlation between Bitcoin and stocks has declined steadily throughout the year. The correlation between Bitcoin and the Nasdaq Composite Index has dropped from 0.94 in early February to 0.58 now.

Interpretation of this information:

The article suggests that there is a weakening correlation between cryptocurrency and the US stock market and macro events. According to Bernstein analysts, the cryptocurrency market is in a state of uncertainty, hovering between long and short positions, and awaiting significant developments. In years past, the encryption market was acutely sensitive to the traditional financial markets; however, that no longer seems to be the case. This trend has been steady throughout the year with the correlation between Bitcoin and stocks dwindling.

The decline in correlation between Bitcoin and the Nasdaq Composite Index is a perfect example of this trend. The correlation was at 0.94 early this year but has now dropped to 0.58. A significant factor that affects the correlation is the adoption of cryptocurrency by institutional investors. As their stake in the cryptocurrency market grows, their behavior in the market will begin to resemble traditional investors. Inevitably, this will lead to the decline of the correlation between the traditional and cryptocurrency markets.

Furthermore, the lack of clear regulatory guidelines for cryptocurrencies and the blockchain industry has led to uncertainty and stunted growth. The market’s relative sensitiveness to macroeconomic events and the traditional financial landscape amplifies this uncertainty. The importance of regulatory frameworks and how they impact the cryptocurrency markets heightens the level of uncertainty in the market. It is difficult to predict what will happen in the market, and this has contributed to the wait-and-see attitude that the market displays.

In conclusion, cryptocurrency markets appear to have a weakening correlation to the traditional stock markets and macro events. The sensitivity of the cryptocurrency market to the behaviour of traditional investors is gradually declining, signalling that institutional investors are beginning to take a significant stake in the market. This trend highlights the need to regulate the cryptocurrency market to provide more certainty and encourage further investment.