Digital assets and US stocks are displaying a historic level of correlation. This suggests that similar macroeconomic factors impact both markets, Bloomberg reported, citing a recent study.
Per the report, the 40-day correlation coefficient between a benchmark index of the largest 100 digital assets and the S&P 500 is approximately 0.67. This is one of the highest levels recorded, only surpassed in the second quarter of 2022 when the correlation peaked at 0.72.
A coefficient of 1 indicates a perfect alignment in movement. Meanwhile -1 signifies a complete inverse relationship.
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Same Macroeconomic Forces Drive Crypto And Equities Markets
The rising correlation suggests that the same macroeconomic forces driving equities are now significantly impacting the crypto market.
Last week, US stocks reached new highs. Bitcoin surged past $64,000 following the Federal Reserve’s anticipated start to a monetary easing cycle, marked by a substantial 50 basis-point rate cut.
🚨 LATEST: For the second week in a row, digital asset investment products attracted inflows amounting to $321 million. This increase was possibly influenced by the Federal Open Market Committee [ #FOMC ] reducing interest rates by 50 basis points.#Bitcoin received inflows of… pic.twitter.com/Zd6XEMWUka
— CoinEcho (@mycoinecho) September 23, 2024
Fed’s actions are being closely watched. Traders across all markets are now keenly focused on incoming US economic data for insights into the potential extent and pace of further interest rate reductions.
“Macro factors are driving crypto prices currently, and this trend is likely to continue throughout the Fed’s easing cycle, unless a crypto-specific black swan event occurs,” said Caroline Mauron, co-founder of Orbit Markets, a liquidity provider for digital-asset derivatives trading.
This week, all eyes will be on the Federal Reserve’s communications, as well as the release of its preferred inflation gauge, the personal consumption expenditures (PCE) price index.
“We view the Fed speakers as more crucial than the PCE data, as the market is currently trying to gauge the Federal Open Market Committee’s (FOMC) reaction function,” stated Sean McNulty, director of trading at Arbelos Markets.
Bitcoin, the largest cryptocurrency, experienced a modest 1% rise. BTC rose to approximately $63,930 on Monday morning in London, mirroring gains in US equity futures.
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Harris Commits to Foster Crypto Investments
Notably, Vice President Kamala Harris’s recent commitment to foster investment in artificial intelligence and cryptocurrencies, if elected president, boosted sentiment on Monday.
“We will partner together to invest in America’s competitiveness, to invest in America’s future,” she said. “We will encourage innovative technologies like AI and digital assets while protecting our consumers and investors.”
Her comments suggest a potential shift from the more cautious approach taken by the current administration. President Joe Biden has been perceived as unfriendly to the crypto sector.
In August, Harris’ senior campaign adviser, Brian Nelson, hinted at a possible pro-crypto policy approach if Harris wins the presidential election in November.
Crypto has increasingly become a significant issue in the presidential campaign. Industry giants such as Coinbase, Ripple, and Gemini reportedly spending nearly $120 million to influence the upcoming elections, according to Public Citizen.
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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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