Nasdaq (NDX) and Bitcoin (BTC) have separated after the cryptocurrency moved in lockstep with Wall Street’s tech-heavy equities index for the majority of the previous four years.
Fairlead Strategies, a research company, has tracked data showing that there is no link between the asset classes. The 40-day correlation between bitcoin and Nadaq is currently zero.
A mathematical procedure based on the historical price movements of BTC and the index is used to calculate the correlation value. When the two assets are in agreement, a correlation above 0.5 denotes a relatively strong positive relationship, whereas values beyond -0.70 denote a robust relationship. Negative values that are less than 0.5 imply the opposite.
Since early 2020, there has been a persistent positive correlation between bitcoin and Nasdaq; during the 2022 crypto bear market, this correlation peaked at 0.8.
The reason for the most recent separation between the two is that, since October, the cryptocurrency market has been entirely preoccupied with anticipations surrounding the debut of a spot bitcoin ETF in the United States. By January 10, the Securities and Exchange Commission is probably going to make a decision on close to a dozen spot ETF applications, which could pave the way for the asset class to become widely accepted.
Additionally, because of the correlation’s breakdown, bitcoin can now function as a portfolio diversifier. According to Fairlead Strategies, bitcoin won’t be dependent on Nasdaq for a while.
Analysts at Fairlead, led by founder and managing partner Katie Stockton, wrote to clients on Monday, “We think correlations for bitcoin and the NDX will likely remain low in the coming months given the opportunity for events such as a spot bitcoin ETF approval and the halving in April.”
“Also, risk assets generally see lower correlations in bull markets than bear markets,” said the researchers.