Bitcoin decouples from risky assets: Good news for LTHs?

Bitcoin’s 30-day correlation coefficient with TradFi bellwethers continued to be negative.
Bitcoin’s volatility relative to gold has been declining steadily over the past few years.

Sentiment around crypto markets and traditional finance diverged dramatically over the last few months. Notably, developments in one sphere failed to impact the other.

How much are 1,10,100 BTCs worth today?

The world’s largest cryptocurrency, Bitcoin [BTC], showed increasing decoupling from popular stock indices like S&P 500, the Dow Jones Industrial Average and the tech-heavy Nasdaq 100, as per on-chain analytics firm IntoTheBlock.

Bitcoin’s 30-day correlation coefficient with these TradFi bellwethers continued to be negative.

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#Bitcoin continues to demonstrate a negative correlation with traditional financial markets. Among major indices, the Dow Jones Industrial Average (DJI) shows the most significant negative correlation, registering at -0.8. For detailed insights visit: https://t.co/Wx8RxQwatF pic.twitter.com/Ze8x1yqmte

— IntoTheBlock (@intotheblock) August 4, 2023

On analyzing the recent price trajectories of the entities in question, it was evident that the digital assets and real-world assets were moving on separate wavelengths.

Bitcoin and equities diverge

The king coined has been sluggish lately, with the price at the time of publication being 0.76% lower than three months ago. The asset was stuck in a narrow trading range between $29,000-$31,000 after its last meaningful rally in June.

Meanwhile, equities have marched higher. Big Tech has pumped 15% in the same time period, while the S&P 500 and the Dow have risen by 8.26% and 4.13%, respectively.

Source: IntoTheBlock

The development holds significance. Notably, for a long time, both Bitcoin and equities were part of the risky asset category.

Ryan Grace, Head of Digital Assets at tastycrypto, attributed Bitcoin’s negative correlation to crypto-specific events like regulatory headwinds. He pointed out that the absence of any immediate catalyst was pulling traditional investors away from Bitcoin and crypto.

Grace added that the excitement and popularity around AI has also contributed to an increased interest in tech stocks vis à vis crypto markets.

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Bitcoin as an inflation hedge

In a nutshell, trends like these are generally cheered by proponents of Bitcoin’s safe haven narrative. If the asset stops reacting wildly to every real-world trigger, it could be used as a refuge in times of financial risk, akin to gold.

Prominent on-chain analyst Will Clemente took to Twitter to reveal how Bitcoin’s volatility relative to gold has been declining steadily over the past few years. At the time of writing, “Digital Gold’s” volatility was hovering around multi-year lows.

Source: Glassnode

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