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Bitcoin and NASDAQ composite index correlation drops to 2-year low

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New data from Kaiko on July 11 indicates that the correlation between Bitcoin and the Nasdaq Composite Index is at a two-year low. The correlation coefficient between these two assets dropped to less than 1% in early July.

At that level, it’s at the lows of July 2021. The NASDAQ Composite Index tracks the performance of all stocks traded on the NASDAQ stock exchange. Stocks listed on this exchange include COIN from Coinbase.

Declining Correlation Between Bitcoin and NASDAQ

A correlation coefficient around 0% means a weak negative relationship between Bitcoin and the NASDAQ. This implies that Bitcoin prices have moved in the opposite direction or are unrelated to the NASDAQ Composite Index action.

As of July 10, Bitcoin prices are relatively firm, hovering around the $30,000 level and generally in an uptrend, looking at price performance in Q2 2023. For context, Bitcoin is below $2,000 in from the 2023 high of $31,400 recorded in June 2023.

Meanwhile, market data shows that the NASDAQ Composite Index is also steady and at a multi-month high, reflecting the general market recovery in the US.

The decreasing correlation between Bitcoin and the NASDAQ can be attributed to several factors. One possible explanation is that investors are becoming more discerning in their investment choices.

As the cryptocurrency market matures and regulations are written, investors may look for assets with low correlation to traditional financial instruments such as stocks and indices.

The other reason could be due to the recent cryptocurrency market action. In 2022, cryptocurrencies including Bitcoin fell from 2021 highs. After peaking at over $69,000, Bitcoin prices plummeted in 2022.

This has been accelerated by the solvency of several centralized financial platforms offering cryptographic services, including Celsius. The collapse of FTX, a popular cryptocurrency exchange, forced prices further down. In November 2022, BTC prices dropped below $16,000.

Like crypto assets, NASDAQ-listed technology stocks such as COIN are relatively volatile and were also affected by rising interest rates in 2021. Subsequently, falling asset prices may have forced investors to become more risk averse. risk and diversify their holdings, forcing correlation. between NASDAQ and Bitcoin even lower.

Watching the US Federal Reserve

It remains to be seen whether this correlation will decline in the coming months. However, at the moment, the cryptocurrency market looks fragile. Bitcoin bulls have failed to breach the June 2023 highs in the continuation of bullish pressure over the past few weeks.

At the same time, market participants are closely watching how the US Federal Reserve will proceed with its monetary policy.

After steadily raising interest rates to curb rising inflation, the central bank halted rate hikes in Q2 2023. It remains to be seen whether it will cut rates in the coming months.

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