According to a recent report from Bloomberg, crypto assets and US stocks are increasingly moving in tandem, showing a significant correlation not seen in recent months. This correlation suggests that macroeconomic factors that influence equity markets also shape the nature of digital assets.
Correlation Between Digital Assets and the S&P 500
According to the reportthe 40-day correlation coefficient for the gauge of 100 major digital assets and the S&P 500 Index is currently around 0.67. This correlation level was exceeded only once, in the second quarter of 2022 when it increased to 0.72.
In this context, a coefficient of 1 indicates that goods move in perfect sync, while a reading of -1 suggests an inverse relationship.
The recent alignment between crypto and traditional equities has been largely heralded since the Federal Reserve (Fed) began a cycle of austerity by using a 50 basis point reduction in interest rates last week.
The decision coincided with US stocks hitting highs for the largest cryptocurrency in the market, Bitcoin (BTC), surpasses the $64,000 mark on Friday for the first time in over a month.
Caroline Mauron, founder of Orbit Markets, a company that specializes in buying digital asset derivatives, noted that macroeconomic factors are currently driving crypto prices. He emphasized that this trend will likely continue throughout the Fed cycle, barring any unexpected events specific to the cryptocurrency market.
Kamala Harris’ Support for Crypto Fuels Investor Hope
This week, the focus will be on comments from Federal Reserve officials and the release of the central bank’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index.
Sean McNulty, director of trading at Arbelos Markets, which provides currency, highlighted the importance of Comments from Fed officialsarguing that their responses to economic data are important for market participants to gauge future monetary policy.
As of Monday, Bitcoin is up less than 1% to $63,389, reflecting modest gains across all major digital tokens. However, in the past seven days, BTC has recorded gains of almost 10%. This upward movement is mirrored by rising US equity futures, which reinforces the correlation between the two markets.
The report also noted that investor sentiment has also strengthened recently promises from Vice President Kamala Harris, who has expressed her commitment to promoting investment in artificial intelligence (AI) and cryptocurrency if she wins the upcoming US election.
In addition, the expectations of other stimulus measures in China following the reduction of borrowing costs they contributed to the positive outlook of the crypto market and the last half of the year.
Featured image from DALL-E, chart from TradingView.com