As Bitcoin Approaches $25,000 It Breaks Correlation With Equities
Bitcoin’s biggest rally in more than a week has pushed it to the brink of $20,000, a key level watched by chartists and technicians. As Bitcoin Approaches $25,000 It Breaks Correlation With Equities
The world’s largest digital currency rose as much as 3.4% on Monday to around $11,835. Crypto fans are closely watching the $12,000 level as a major hurdle to cross before it can embark on a bigger rally.
The Bloomberg Galaxy Crypto Index, which tracks some of the largest digital coins, also rose, gaining 4.5% at one point. Dash and Monero were among the biggest advancers, each rising more than 5%.
On Monday, the International Monetary Fund hosted a virtual panel on cross-border payments and digital currencies which featured BIS General Manager Agustin Carstens as well as the Federal Reserve Chairman Jerome Powell, among others. Powell said the central bank is evaluating the costs and benefits of a digital currency but has not decided yet on whether to issue one. He also nodded to Facebook Inc.’s Libra as a catalyst for focusing more attention on the issues.
The discussion at least partly helps explain Bitcoin’s move higher as it was closely watched by the crypto community, said Mati Greenspan, founder of Quantum Economics.
“Comments from Jerome Powell and the other participants made it clear just how far apart the various countries are when it comes to CBDCs,” said Greenspan, referring to central bank digital currencies. “Many on social media were quick to point out that a truly global and decentralized digital currency already exists.”
The coin’s trading Monday also helped it buck a recent trend of moving in tandem with U.S. equities, whereby it was often rising when they were and falling on risk-off days. The S&P 500 Index dropped as investors weighed the latest progress on a new government spending bill meant to help shore up the economy.
Many analysts remain bullish on the cryptocurrency, heartened by its limited supply and comforted by greater institutional acceptance in recent weeks. Square Inc., for instance, said earlier this month that it has made an investment of about $50 million in Bitcoin.
“We see Bitcoin emerging as a relative oasis of calm and outperformance,” wrote Mike McGlone, an analyst with Bloomberg Intelligence, in a note. “There should be little doubt technology and digitization will continue advancing, yet Bitcoin’s supply will keep shrinking, supporting its price.”
Frozen Out? Bitcoin Price Correlation To Other Assets Still Undefined
Fidelity’s report claiming Bitcoin as a non-correlated asset draws discussions, as not all agree with the assessment.
A recent report from institutional crypto firm Fidelity Digital Assets concluded that Bitcoin (BTC) shows very little price correlation to mainstream financial assets, based on data from the past five years.
Over the course of 2020, Bitcoin has gained further adoption into mainstream finance, which logically might impact the asset’s correlation or lack thereof. Has Bitcoin’s correlation changed in 2020?
Ria Bhutoria, director of research at Fidelity Digital Assets, told Cointelegraph via email: “Bitcoin has experienced higher positive correlations to other assets over shorter time periods, especially during periods of uncertainty and turbulence, and even prior to 2020.”
Amid rising COVID-19 concerns and prevention measures starting in March 2020, Bitcoin plummeted in price, seemingly in step with the U.S. stock market. “The increase in correlation between Bitcoin and other assets was a consequence of a short-term liquidity crisis that impacted many asset classes,” Bhutoria explained of the March drop.
Essentially, a large number of people rushed to sell their financial assets in exchange for cash when times became uncertain around the COVID-19 pandemic news. She added:
“The correlation of all these assets versus one another rose as a result. Regarding Bitcoin, another potential reason could be greater overlap in market infrastructure and between market participants in traditional and digital asset markets.”
Fidelity released an in-depth October report labeled “Bitcoin Investment Thesis: Bitcoin’s Role As An Alternative Investment.” Authored by Bhutoria, the report touched on a bevy of topics.
One particular segment of the report pointed out Bitcoin’s lack of correlation to other financial assets, including U.S. stocks and gold. Correlation stands as a hotly debated topic in the crypto industry.
Using data from January 2015 to September 2020, Fidelity’s report concluded that Bitcoin performed differently than mainstream assets, signalling virtually zero correlation to other markets for that time period. BTC scored a 0.11 in a range between -1 and 1.
Wielding a 1 rating means prices of assets travel exactly in step with one another, while a score of -1 means exactly the opposite price action. Any asset holding a score of 0 walks its own price path, unaffected when others move.
In addition to the March drop, multiple other instances have shown a seeming correlation between Bitcoin and traditional markets, at least at certain points. The element of adoption could play into the equation, making Bitcoin more correlated than years prior — an aspect pointed out in Fidelity’s report.
“Bitcoin is a young asset that, until recently, was untethered to traditional markets,” the report read, adding: “As it is integrated in institutional portfolios, it could become increasingly correlated with other assets.”
Bitcoin has seen significant mainstream adoption in 2020. One sign is a number of traditional financial players, such as MicroStrategy, have accumulated sizable Bitcoin positions. PayPal also recently announced plans for adding Bitcoin to its platform in 2020, pushing the asset further into the mainstream spotlight.
“Bitcoin’s longer-term correlations to other assets could continue to be low, given Bitcoin’s differing risk and return factors versus other asset classes and its dynamic use cases and narratives,” Bhutoria said, adding further:
“If investors with longer time horizons and convictions allocate to Bitcoin, the magnitude of spikes in short-term correlations to other assets in times of uncertainty could subdue as well. These are conjectures that we will continue to update as we get more data and a better understanding of Bitcoin’s behavior in a prolonged crisis.”
Over the years, other industry participants have also weighed in on Bitcoin’s price in line with other markets. Morgan Creek Digital co-founder Anthony Pompliano holds as a long-time advocate for Bitcoin as a non-correlated asset.
“All assets trend towards a correlation of 1 in a liquidity crisis,” Pompliano told Cointelegraph in an email, which also lines up with Bhutoria’s explanation. He further added:
“We saw a liquidity crisis hit earlier this year, so it is natural to expect correlations to increase during these times. We are seeing a decoupling over the last few weeks and my guess would be we will see a return to low/no correlation over the coming months.”
Prior to Bitcoin’s launch in 2009, the financial crisis of 2007–2008 yielded similar liquidity issues. As the public often compares Bitcoin to gold, looking at gold during this crisis adds perspective. “We saw gold drop 30% over the liquidity crisis during the summer of 2008, along with all assets trending to a correlation of 1 during the same time,” Pompliano wrote, adding: “Eventually the assets decoupled later on and so history can teach us a great lesson here as well.”
Bitcoin (BTC) Is Inversely Correlated To USD, No Correlation With Stocks: Max Keiser
Don’t be fooled by randomness https://t.co/UIbu7hiW5m
— Max Keiser (@maxkeiser) September 22, 2020
Bitcoin is not correlated to the stock market, stated prominent Bitcoin advocate Max Keiser, responding to a Twitter user who stated that the flagship cryptocurrency is likely to collapse if the stock market plummets.
Keiser believes that, if Bitcoin does have any correlation with traditional assets, it is with USD and the correlation is an inverse one.
“Bitcoin is inversely correlated to the USD”
Max Keiser responded to a tweet by an anonymous user who alleged that Bitcoin would go down next time the stock market plummets. The person stated that Bitcoin needs to get out from under “banking’s thumb.”
Commenting on that, Keiser pointed out that the only thing Bitcoin is correlated with is the USD in an inverse manner, as is gold.
Gold ‘Breaking Down’ Against Bitcoin Is Highly Bullish For BTC — Analyst
Real Vision Group CEO Raoul Pal says gold is “breaking down” against Bitcoin, a signal that the bullish case for BTC continues to strengthen.
Earlier this week, Bitcoin (BTC) advocate and Real Vision CEO Raoul Pal said gold is breaking down against BTC. If the dominant cryptocurrency continues to gain momentum against BTC, it could strengthen its perception as a store of value.
In the past month, the price of Bitcoin gained 30.36% against the U.S. dollar, from $10,136 to $13,217. In the same period, gold has gained about 2.25%, from $1,863 to $1,903.
Why Is Bitcoin Outperforming Gold And Stocks?
In the past two weeks, while the price of Bitcoin rallied strongly, both gold and the U.S. stock market steadily recovered.
The confluence of three major factors likely contributed to the upsurge of Bitcoin since early October.
First, PayPal’s crypto integration announcement buoyed market sentiment. Second, the institutional demand for BTC has continuously increased following Square, MicroStrategy, and Stone Ridge’s investment. Third, Bitcoin’s favorable high time frame log charts have spurred significant optimism.
Particularly, after its breakout above $12,000, the volume of Bitcoin across the spot, institutional, and derivatives market spiked. Consequently, the digital asset began to outperform most risk-on and risk-off assets. Pal said:
“Gold is breaking down versus bitcoin, as expected cc: @michael_saylor Everyone take note. The next thing I’m expecting is the correlations between BTC and the dollar and BTC vs equities to break down too… let’s see. #Bitcoin.”
As Cointelegraph reported, when Bitcoin surged past the $12,000 resistance level, it marked a clean breakout on the weekly chart. Traders have started to pinpoint the weekly and monthly log charts to predict a new all-time high.
The strong technical momentum of Bitcoin and its decoupling from gold and stocks are also possibly furthering the intensity of BTC’s current rally.
In the short term, cryptocurrency technical analysts say that Bitcoin faces an identity crisis, but fortunately in a good way.
Cantering Clark, a Bitcoin and derivatives trader, said gold is under pressure when the dollar goes up. The analyst said that for BTC, due to uncertainty on whether it is a risk-on or a risk-off asset, it could see a lower correlation with the dollar. He wrote:
“Gold’s adversary is the dollar, if the $DXY heads north, Gold is immediately under pressure. $BTC has the benefit of having the identity crisis still, where some see it as a SOV, and some see it has a higher beta play on equities.”
Prominent Investors’ Confidence Is The Cherry On Top
As the momentum of Bitcoin continues to gain against gold and stocks, prominent billionaire investors are voicing their support for BTC.
Paul Tudor Jones, the Wall Street billionaire investor who purchased Bitcoin in May, reaffirmed his positive stance around Bitcoin.
Hasu, a researcher who writes for the top cryptocurrency options exchange Deribit, quoted Tudor Jones saying:
“I’ve never seen a store of value where you also have [such] great intellectual capital behind it. […] When you short the bond market as an inflation hedge you’re really betting on the fallacy of mankind rather than its ingenuity.”
Market Is Proving Bitcoin Is ‘Ultimate Safe Haven’ — Anthony Pompliano
Bitcoin has zero correlation to stocks once more and critics were wrong to doubt its safe-haven status, says the Morgan Creek Digital co-founder.
Bitcoin (BTC) “could not be more uncorrelated” with the stock market, Anthony Pompliano says as data shows that BTC is leaving macro assets behind.
In a series of tweets on Oct. 26, the Morgan Creek Digital co-founder, also known as “Pomp,” took critics to task over their accusations that Bitcoin was a poor store of value.
Pomp On Safe Haven Bitcoin: “The Market Is Proving It”
— cryptotothemoon (@cryptotothemoo1) October 26, 2020
Pompliano uploaded a chart from behavior analysis platform Santiment, which showed Bitcoin hitting 0 for 30-day correlation with the S&P 500.
“It could not be more uncorrelated than it is right now,” he added in comments.
Continuing, Pompliano highlighted Bitcoin beating macro asset returns since the Coronavirus crash in March this year.
“So how did Bitcoin do during an economic downturn? It outperformed stocks, bonds, gold, oil, and pretty much everything else. It also has a low to no correlation over any material amount of time,” he summarized.
“Bitcoin is the ultimate safe haven & the market is proving it.”
Circling $13,150, BTC/USD has offered investors year-to-date returns of 83%, versus 24% for gold and 6% for the S&P 500, data from on-chain monitoring resource Skew confirms.
For Pompliano, previous correlation between Bitcoin and these assets was merely a short-term phenomenon induced by the March events.
“During liquidity crises, all asset correlations trend towards 1. This was temporary thing & happened to gold, stocks, etc.,” he wrote.
No More Correlation?
As Cointelegraph reported, a consensus has been building that Bitcoin is not only abandoning its correlation with stocks and others but that this will be a definitive watershed which will not be reversed.
Among those promoting the idea is Willy Woo, the statistician and creator of data resource Woobull, who continues to double down on Bitcoin striking out on its own sooner rather than later.
“The decoupling is upon us,” he tweeted last week.
“Makes sense that BTC will continue to be correlated in short timeframe trading; but not in the longer timeframes. BTC is a safehaven, just that ‘risk-on’ (meaning it’s very new) is skewing this fact.”
Willy Woo: Signs That BTC Is Decoupling Supports Its ‘Safe Haven’ Status
Bitcoin’s decoupling from stocks began within days of its NVT price hitting an all-time high, according to Willy Woo.
Bitcoin (BTC) has started to decouple from the U.S. stock market index S&P 500 according to crypto statistician Willy Woo.
First signs of de-coupling behaviour spotted between BTC and stocks.
Buying from an influx of new users provides price support preventing speculators from trading the correlation downwards.
NVTP approximates a valuation for BTC with organic investor velocity on the blockchain. pic.twitter.com/AvilB9cfdD
— Willy Woo (@woonomic) October 29, 2020
Predicting this behavior in late September, he asserted that Bitcoin will break ties with traditional markets due to an influx of new users:
“Bitcoin will decouple from traditional markets soon, but driven by its internal adoption s-curve (think startup style growth) rather than changes in perceptions as a hedging instrument by traditional investors.”
Referring to Network Value to Transaction Ratio (NVT), an indicator Woo introduced in 2017, the analyst said that Bitcoin’s NVT price has shown clear price support despite the S&P falling sharply over recent days.
The NVT can be likened to Bitcoin’s P/E (price to earnings) ratio, however since Bitcoin has no earnings in the literal sense, Woo replaced the P/E values with network value (Bitcoin’s market cap) and daily USD on-chain transaction volume.
Two days ago, Bitcoin’s NVT price (price support) crept into new all-time-highs above $11,000.
Woo added that the indicators suggest Bitcoin could begin reclaiming its status as a “safe-haven” asset should stocks continue to fall:
“What this test shows is that if stocks crash, Bitcoin powered by its large adoption s-curve, swallowing ever more capital, will present perfectly good safe haven properties.”
On Oct 26, Morgan Creek Digital co-founder Anthony Pompliano claimed “Bitcoin is the ultimate safe haven” and the market is proving it,” adding that Bitcoin “could not be more uncorrelated” with the stock market.
Not everyone agrees that Bitcoin had any decoupling to do: analyst Scott Melker Tweeted in May that stocks and Bitcoin are “not correlated now, and they weren’t correlated before.”
Early last week, crypto investor Chris Dunn suggested a negative correlation between stocks and BTC had started, prompting Woo to reiterate his stance of Bitcoin as a safe alternative to traditional assets:
“Makes sense that BTC will continue to be correlated in short time frame trading; but not in the longer time frames. BTC is a safe haven, just that ‘risk-on’ (meaning it’s very new) is skewing this fact.”
However, some analysts have suggested that an excessive preoccupation with the correlation between BTC and the S&P 500 could be dangerous. Analyst Michaël van de Poppe said that when things get messy, as they did in March this year, “all correlations tend to go towards 1,” adding:
“Since then, gold, silver & Bitcoin have been resilient for any downwards move and showing strength apart from the equity markets. Don’t pin yourself on those correlations.”
Even Wild Crypto Can Temper Volatile Stocks, Cornerstone Says
In the latest twist to a roller-coaster year for traders, investors looking to counter the wild volatility of the stock market can now consider the stabilizing influence of cryptocurrencies, according to Cornerstone Macro LLC.
Strategists including Roberto Perli and Benson Durham used estimates of volatilities and correlations among the S&P 500 and five digital coins, including Bitcoin and Ether, to work out the optimal amount to reduce volatility in portfolios.
They found a share of crypto that ranged between 0% and 64% in data back to September 2015, with the average at 6.4%, would help produce such a minimum variance portfolio.
“Even though cryptos remain more volatile than stocks, the so-called minimum variance portfolio — comprised of the S&P 500 and a handful of digital coins — can nonetheless reduce risk meaningfully relative to equities alone, including during the worst of 2020,” they said.
Than 0.5%, While An Inverse Correlation Has Less Than -0.5%
Cryptocurrencies have been on a tear this year amid increased institutional acceptance, interest from family offices and younger investors, as well as concerns about Covid-19’s effect on the global economy and on fiat currencies due to the stimulus flooding the system. However, it’s still seen as a volatile asset class, and concerns about issues like legitimacy and security remain.
One key reason why a basket of the largest cryptocurrencies can help reduce overall volatility risk is the significant variance in price moves between the coins themselves, making them good diversifiers, the strategists said.
“Despite high volatility among cryptos, the evidence points to potential diversification benefits for a wide array of investment mandates, even during a year as tricky as 2020,” the economists said.
Bitcoin Likely To Transition To A Risk-Off Asset In H2 2022, Says Bloomberg Analyst
As the global economy moves into a recession in the second half of 2002, Bitcoin will likely rally alongside gold and treasury bonds, according to Mike McGlone, a senior commodity strategist at Bloomberg.
Bitcoin is likely to transition from a risk-on to a risk-off asset in the second half of 2022, as the macroeconomic environment is rapidly shifting towards a recession, said Mike McGlone, senior commodity strategist at Bloomberg, in a recent interview with Cointelegraph. McGlone predicted:
“ I see it transitioning to be more of a risk-off asset like bonds and gold, then less of a risk-on asset like the stock market.”
According to the analyst, the crypto market has flushed out most of the speculative excesses that marked 2021 and it is now ripe for a fresh rally.
McGlone also pointed out that the Fed’s aggressive hiking of interest rates will lead the global economy to a deflationary recession, which will ultimately favor Bitcoin:
“I fully expect we’re going to have a pretty severe recession globally, which probably will make Bitcoin shine […] along with gold and U.S. Treasury long bonds.”
Bitcoin’s Link With Stocks Weakens As ‘Stronger Hands’ Left Clinging On
* More Investors In Crypto Now Are Longer-Term Holders: Tu
* Number Of ‘Hodlers’ With Up To 0.1 Bitcoin Has Grown Recently
For much of the year, Bitcoin has traded in the same way as US stocks, falling when they fall and rising when they have a good day. Not on Monday.
The largest digital coin by market value rose more than 2% at one point at the start of the week to trade around $19,300.
The S&P 500, on the other hand, lost as much as 1.3% and was on pace to notch its fifth straight losing session. Ether, Binance Coin, Solana and other cryptocurrencies also advanced.
“A lot of the players still holding crypto now are the stronger hands,” said Andrew Tu, head of growth for crypto algorithmic-trading firm Efficient Frontier.
In fact, the number of so-called hodlers — investors who are committed to crypto through thick and thin — with as much as 0.1 BTC has grown in recent months, a trend that’s contrary to past bear markets, according to a note from Bitfinex.
“On-chain data suggests that many of those attracted by rising prices in 2020 and 2021 have stuck around, and they continue to invest a significant chunk of their capital in digital assets,” the note said.
“So while their portfolios have lost value, those losses aren’t locked in because they haven’t sold — the on-chain data suggests those holders are optimistic the market will bounce back, keeping market fundamentals relatively healthy.”
It’s unusual for crypto and equities to de-couple. They’ve moved in tandem for the majority of 2022, as policies from the Federal Reserve have weighed heavily on both asset classes.
US stocks have suffered and are down more than 20% from highs reached at the start of the year. Meanwhile, Bitcoin is down some 60% in the same span.
“At some point, the market will be controlled by those in the community that are long-term believers in BTC and very unlikely to sell and the growing global community which use BTC for commerce,” said Stephane Ouellette, chief executive of FRNT Financial Inc.
“When the latter participants control the market, one would expect correlations with risk assets to break down and BTC to ‘start trading in its own world’ as I believe we are seeing now.”
Still, the market mood has remained sour after this year’s drubbing, with the general population showing less interest in the space. Overall adoption has slowed down worldwide, the Bitfinex note said.
Crypto Correlation To Stocks Is Starting To Break, Pantera’s Morehead Says
* “There Are Glimmers Of This Decoupling,” Fund Manager Says
* Pantera Is Raising $1.25 Billion For Another Blockchain Fund
Dan Morehead, chief executive and founder of Pantera Capital, says that the high correlation between cryptocurrency prices and risk assets is already starting to break.
Morehead said that for a decade, digital token prices did not correlate closely with risk assets such as stocks. But for much of the year, digital tokens and risk assets have been “highly correlated,” he says.
But the crypto hedge-fund manager said crypto’s performance does not necessarily have to align with risk assets.
“Most risk assets are interest rate based,” Morehead said on Bloomberg TV. “Crypto really is totally independent. It’s about all kinds of different use cases that have nothing to do with rates, so I could see a world where even if risk assets continue to struggle, blockchain does well.”
Prices for Bitcoin, the largest virtual currency by market value, have mirrored moves in US stocks this year. A 60-day correlation coefficient for Bitcoin and contracts on the S&P 500 hovered around 0.67 on Wednesday. (A coefficient of 1 means the assets are moving in lockstep, while minus-1 would show they’re moving in opposite directions.)
“There are glimmers of this decoupling,” Morehead said.
Morehead said last month that Pantera plans to raise $1.25 billion for its second blockchain fund to court institutional investors. Pantera aims to close the fund, which will invest in stocks and digital assets, by May 2023.
Bitcoin Weak Hands ‘Mostly Gone’ As BTC Ignores Amazon, Meta Stock Dip
Huge tech stock losses, mostly occurring after the Wall Street close, fail to show up in Bitcoin price weakness.
Bitcoin is decoupling from big tech as disappointing earnings fail to spark any major BTC price losses.
Economic data for Q3, 2022, saw heavy losses for some tech stocks, but BTC/USD avoided a chain reaction.
Bitcoin Hodlers Shrug Off Q3 Tech Results
The largest cryptocurrency shed around $800 over Oct. 27, or 3.8%, after hitting its highest levels in six weeks.
At the time of writing, Bitcoin was still around $20,200, offering more consolidatory trading behavior than a major correction.
The same was not true of tech stocks — these were led by a dramatic 20% rout in Amazon during out-of-hours trading thanks to missed earnings targets. Amazon’s market cap sealed the biggest such post-close drop in history, at over $230 billion.
“There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets,” CEO Andy Jassy commented in the firm’s Q3 earnings report.
While evidence of the problematic state of flux experienced by tech giants worldwide this year, Amazon’s comedown notably failed to spark copycat moves on crypto markets.
The same is true with similarly painful results from Meta, the stock price of which fell below $100 to return to 2015-levels this week.
This is a sea change from the end of 2021, economist, trader and entrepreneur Alex Krueger believes, that time marked by heavy price declines, which came in step with poor performance at Netflix.
“Last January Netflix’s earnings and its ensuing 20% crash sent $BTC down 20%, $ETH down 30%. Today Amazon’s earnings and its ensuing 20% crash sent $BTC down 2%, $ETH down 3%,” he tweeted on Oct. 28:
“Weak Hands Are Mostly Gone.”
With that, Netflix is down 50% year-to-date with its current stock price around $300. BTC/USD is down around 6% more, data from Cointelegraph Markets Pro and TradingView shows.
Correlation Has Not Gone Away
The observation feeds into a growing narrative over Bitcoin’s correlation to traditional markets.
The past week has not seen the clear-cut lockstep moves between BTC and equities, with the former playing catch-up as stocks cooled. As Cointelegraph previously reported, Bitcoin’s growing correlation to gold is now gaining attention once again.
Overall, however, a long-term trend change in correlation with the S&P 500, for example, is still far from being confirmed.
“While it’s too early to say if this trend continues, it’s worth watching,” Mario Nawfal, founder of Blockchain consultancy firm IBC Group, summarized.
Bitcoin Bulls Ignore Recent Regulatory FUD By Showing Continued Decoupling From Stocks
Bitcoin’s upward momentum can continue, according to Asian stablecoin demand and the BTC futures premium.
It might seem like forever ago that Bitcoin was trading below $18,000, but in reality, it was 40 days ago. Cryptocurrency traders tend to have a short-term memory, and more importantly, they attribute less importance to negative news during bull runs. A great example of this behavior is BTC’s 15% gain since Feb. 13 despite a steady flow of bad news in the crypto market.
For instance, on Feb. 13, the New York State Department of Financial Services ordered Paxos to “cease minting” the Paxos-issued Binance USD dollar-pegged stablecoin.
Similarly, Reuters reported on Feb. 16 that a bank account controlled by Binance.US moved over $400 million to the trading firm Merit Peak — which is supposedly an independent entity also controlled by Binance CEO Changpeng Zhao.
The regulatory pressure wave continued on Feb. 17 as the United States Securities and Exchange Commission announced a $1.4-million settlement with former NBA player Paul Pierce for allegedly promoting “false and misleading statements” regarding EthereumMax (EMAX) tokens on social media.
None of those adverse events were able to break investors’ optimism after weak economic data signaled that the U.S. Federal Reserve has less room to keep raising interest rates.
The Philadelphia Fed’s Manufacturing Index displayed a 24% decrease on Feb. 16, and U.S. housing starts increased by 1.31 million versus the previous month, which is softer than the 1.36 million expectation.
Let’s take a look at Bitcoin derivatives metrics to better understand how professional traders are positioned in the current market conditions.
Asia-Based Stablecoin Demand Remains “Modest”
Traders should refer to the USD Coin premium to measure the demand for cryptocurrency in Asia. The index measures the difference between China-based peer-to-peer stablecoin trades and the U.S. dollar.
Excessive cryptocurrency buying demand can pressure the indicator above fair value at 104%. On the other hand, the stablecoin’s market offer is flooded during bearish markets, causing a 4% or higher discount.
Currently, the USDC premium stands at 2.7%, which is flat versus the previous week on Feb. 13 and indicates modest demand for stablecoin buying in Asia. However, the positive indicator shows that retail traders were not frightened by the recent newsflow or Bitcoin’s rejection at $25,000.
The Futures Premium Shows Bullish Momentum
Retail traders usually avoid quarterly futures due to their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract.
The two-month futures annualized premium should trade between +4% and +8% in healthy markets to cover costs and associated risks. Thus, when the futures trade below this range, it shows a lack of confidence from leverage buyers. This is typically a bearish indicator.
The chart shows bullish momentum, as the Bitcoin futures premium broke above the 4% neutral threshold on Feb. 16. This movement represents a return to a neutral-to-bullish sentiment that prevailed until early February.
As a result, it’s clear that pro traders are becoming more comfortable with Bitcoin trading above $24,000.
The Limited Impact Of Regulatory Action Is A Positive Sign
While Bitcoin’s 15% price gain since Feb. 13 is encouraging, the regulatory newsflow has been primarily negative. Investors are excited by the U.S. Fed‘s decreased ability to curb the economy and contain inflation. Hence, one can understand how those bearish events could not break cryptocurrency traders’ spirit.
Ultimately, the correlation with the S&P 500 50-day futures remains high at 83%. Correlation stats above 70% indicate that asset classes are moving in tandem, meaning the macroeconomic scenario is likely determining the overall trend.
At the moment, both retail and pro traders are showing signs of confidence, according to the stablecoin premium and BTC futures metrics.
Consequently, the odds favor a continuation of the rally because the absence of a price correction typically marks bull markets despite the presence of bearish events, especially regulatory ones.
Can Bitcoin Price Hold $24K As Stocks Correlation Hits Lowest Since 2021?
Bitcoin silver linings are few and far between on short timeframes as BTC price bid liquidity dries up above $23,000.
Analyst On Bitcoin: “Waiting For A Bit Lower”
Data from Cointelegraph Markets Pro and TradingView recorded lows of $23,871 on Bitstamp, with S&P 500 futures slipping under 4,000 ahead of the Wall Street open.
Bitcoin bulls had lost ground after the U.S. holiday weekend, which ended in weakness across equities and a failed attempt to flip $25,000 to support.
For Cointelegraph contributor Michaël van de Poppe, who hoped the correction would be short-lived, it was time to wait and see.
“Markets correcting as U.S. indices are also correcting at this point. This means, opportunities!” he told Twitter followers on the day.
“I think I’ll be waiting for a bit lower on Bitcoin to get triggered for a long position.“
Van de Poppe had previously forecast a move to as high as $40,000 for BTC/USD before a correction set in, potentially shaving 50% off that high.
Meanwhile, Dylan LeClair, senior analyst at UTXO Management, warned that a “crisis” between stocks and U.S. bonds continued to play out.
“Bonds rolling over over the past month served as a flashing alarm for a reversal, during which equities became the most expensive relative to bonds since before the GFC, as 2021 bubble favorites led the rally,“ part of a Twitter thread read.
Another post nonetheless noted that Bitcoin’s correlation to stocks was at its lowest since late 2021 but “still very much positive.“
“I am quite interested to see how bitcoin trades during the next risk off move in legacy markets… Let’s see,“ LeClair added.
Binance “Notorious B.I.D.” Gets Filled
Within Bitcoin, attention still focused on a sizable bid wall, which had moved the spot price by shifting itself around the Binance order book in recent days.
— Material Indicators (@MI_Algos) February 22, 2023
With support thus removed from the order book, Material Indicators added in accompanying comments that it would be “very happy” if BTC/USD were to now continue downward to $21,500.
“The bid wall got filled. Liquidity hasn’t stopped moving around the order book long enough to analyze. Waiting for it to settle down,” another post stated.