Forex in this article
index in this article
• 40-day correlation between Bitcoin and NASDAQ 100 at an all-time high
• High correlation makes Bitcoin less attractive
• Crypto fanatic Arthur Hayes fears a drop in tech and crypto stocks
Earlier this year, Victoria Greene of wealth manager G Squared Private Wealth warned Bloomberg that Bitcoin has a much greater tendency to correlate with the NASDAQ than with inflation or other currencies. This trend has continued since the beginning of the year: at the end of last week, the 40-day correlation between the largest cryptocurrency and the NASDAQ 100 reached 0.6945, according to data from Bloomberg, a historic high. According to the news site, the correlation between bitcoin and tech stocks has steadily increased since the start of the coronavirus pandemic and is now approaching 1, which would mean perfect synchronization between the two classes of currencies. assets.
It is already clear that if the price of US tech stocks falls, Bitcoin will also fall. For example, the digital currency fell below US$40,000 on Tuesday night after the NASDAQ 100 also fell significantly in Monday’s trading. But not only does Bitcoin move similarly to the US index, according to crypto expert Arthur Hayes, there is also a strong correlation with the second largest cryptocurrency Ethereum. This has several disadvantages for the crypto market.
Bitcoin and Ethereum lose appeal due to high correlation
“If this continues in terms of correlation, then we think crypto could lose its appeal as a hedge,” Anderson Lafontant of investment adviser Miracle Mile Advisors said in January in an interview with “Bloomberg” and pointed out even then. that the beginnings of this evolution are already visible. Current data seems to prove him right, because in fact a strong correlation with stock markets means that Bitcoin is not the safe haven or digital gold that its proponents often portray. Because as a safe haven, the digital currency should remain relatively unaffected by market turbulence. The coin is also only suitable to a limited extent for diversifying the portfolio, as long as it moves almost in step with Big Tech. However, according to ‘BeInCrypto’, Bitcoin advocates have been promoting the asset for years, arguing that it has no connection to other markets and therefore investing in cryptocurrency is a good decision. .
Although Bitcoin, Ethereum and Co. are in fact independent in principle, they are also weighed down – like tech stocks – by the monetary policy tightening of many central banks, which makes interest-free investments less attractive. Bitcoin is likely to feel it now, especially because it has left its old niche and entered the mainstream, and more and more conventional investors are investing who are also pursuing their investment strategies with cyber currencies.
Arthur Hayes predicts a bleak future for Bitcoin and Ether
Arthur Hayes, crypto enthusiast and former CEO of Bitcoin trading platform BitMEX, is also concerned about the high correlation between Bitcoin and Ethereum and the NASDAQ 100. “The inconvenient truth, crypto [
] What’s happening is that the crypto market is moving at the same pace as non-debt-based risk-free asset markets like the developed global stock market,” Hayes wrote on his blog earlier in the week. However, this is “not what we want”. — and for good reason. As Hayes continues, “Bitcoin and Ether are highly correlated with the NASDAQ 100. If NDX goes down, it will drop the crypto along with it,” the expert said.
A crash in the NASDAQ 100 is only a matter of time for Hayes, as he explains in the blog entry. Because rising interest rates, falling economic growth and global liquidity conditions for fiat currencies will continue to put pressure on big tech stocks – which will then also be felt by cryptocurrencies due of the strong correlation. According to Hayes, his intuition tells him that Bitcoin will test the $30,000 mark by the end of the second quarter. Ethereum could go down to $2,500. He therefore recommends all investors to remain defensive on crypto positions until the 10-day correlation begins to decline again. He himself would prepare for the coming crash by buying put options on Bitcoin and Ether. But this is only a safeguard to act in a short-term situation. Otherwise, it continues to be long in cryptocurrencies.
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