Bitcoin correlation with stocks hits 5-year low due to regulatory crackdown.

Key Takeaways

• The correlation between Bitcoin and the Nasdaq is at its lowest point since 2018, despite the Nasdaq’s recent surge.
• Bitcoin has fallen 9% in the past month, while the Nasdaq has risen 10%.
• This break in correlation surpasses what was seen during the FTX collapse in November 2022.
• The recent US regulatory crackdown on crypto is causing fear about its future in the country, leading to suppressed prices.

After ten consecutive interest rate hikes, the US Federal Reserve has paused its rate hiking policy, which was expected by the market.

Over the past month, the S&P 500 and Nasdaq have both seen significant gains, but Bitcoin has not followed this trend.

Bitcoin is now trading below $25,000 for the first time in three months, marking a clear departure from its previous tight correlation with the stock market. The recent regulatory crackdown in the US is causing fear about crypto’s future in the country, leading to suppressed prices. This break in correlation is even more significant than what was seen during the FTX collapse in November 2022.

Last week, I wrote a detailed analysis of the concerns surrounding the Coinbase lawsuit, which I won’t repeat here (you can find it here). While I believe that Bitcoin will be able to withstand the storm in the long run, the situation looks much less clear for other cryptocurrencies.

• Crypto trading volumes hit yearly lows in Q2.
• BlackRock to file for Bitcoin ETF.
• Brink to receive $5M from Jack Dorsey’s Relief Fund for Bitcoin project.

Make no mistake, the cryptocurrency industry faces a huge problem as long as regulators continue to tighten their grip. For many in the crypto market, the crisis feels existential.

Bitcoin enthusiasts dream of a day when it can separate itself and claim the title of an uncorrelated hedge asset or a store of value, similar to gold. I’ve done a lot of research on what that hypothetical future might look like or what could lead the market to that point. But for now, it remains just that: hypothetical. Although correlation is at its lowest point in five years, it is not being driven by fundamentals and will inevitably rise again. This is simply the market’s reaction to a very bearish development regarding regulation in the US.

This is not how investors hoped for decoupling to occur. However, if anyone doubted the market’s fear of regulatory woes or why Bitcoin had not fallen further, the break in correlation clearly illustrates how harmful Gary Gensler’s actions have been to the cryptocurrency industry.

Truth be told, Bitcoin’s correlation is more out of sync now than it has ever been while trading as a mainstream financial asset. When it last occurred in 2018, Bitcoin traded with such low liquidity that its price action was largely irrelevant for drawing conclusions in the future.