In a remarkable display of resilience, Bitcoin has shrugged off a dip in global stock markets, establishing a new more than 19-month high and signaling its increasing detachment from traditional assets. The digital currency experienced a surge of as much as 4.5%, reaching approximately $43,940 in New York on Tuesday. This surge which has taken Bitcoin to a more than 19-month high follows a momentum-building trend over Sunday and Monday, propelling Bitcoin above the $40,000 mark for the first time in nearly two years. In stark contrast, global shares and bonds have witnessed losses since the onset of the week.
The divergence between Bitcoin and traditional assets underscores the current low correlation of cryptocurrencies with macroeconomic elements, as noted by Sean Farrell, the head of digital-asset strategy at Fundstrat Global Advisors LLC. Farrell emphasized this point in a note, highlighting the diminishing correlations between Bitcoin, stocks, and gold, indicating the unique trajectory of the largest digital asset.
Throughout 2023, Bitcoin’s correlations with traditional assets have waned, experiencing a 160% climb primarily driven by crypto-specific factors. A significant contributing factor to the surge is the anticipation that the United States will greenlight its first spot Bitcoin exchange-traded funds (ETFs), potentially expanding demand for the cryptocurrency. Bitcoin’s prominence is evident within the digital-asset market itself, with Ether rising by 1.4% while other cryptocurrencies like Dogecoin, Avalanche, and Polygon witnessed declines.
Further bolstering the positive trend, stocks related to the crypto industry recorded extended gains. Coinbase, MicroStrategy, and Marathon Digital all registered increases for the third consecutive day, with each posting gains exceeding 300% for the year.
A critical metric, the 90-day correlation coefficient between Bitcoin and MSCI Inc.’s world shares index, has dropped to 0.18 from 0.60 at the beginning of the year. A similar correlation study with spot gold shows a decline to nearly zero from 0.36. These figures indicate the diminishing correlation between Bitcoin and traditional assets. In this context, a reading of 1 indicates assets moving in lockstep, while minus-1 suggests opposite directions.
Greg Moritz, co-founder and chief operating officer at crypto hedge fund AltTab Capital, sees a confluence of factors driving this surge, including the crypto cycle entering a bullish phase, a more favorable macroeconomic environment for risk assets, and positive news about forthcoming Bitcoin and Ethereum ETFs. Moritz anticipates robust growth in digital assets as we enter 2024.
An industry-specific driver is the regulatory landscape, with crypto executives growing optimistic that the US crackdown on the sector may have peaked. Recent developments, including the legal actions against Sam Bankman-Fried and Binance, have prompted industry insiders to believe that US regulators have largely expressed their stance, potentially paving the way for more constructive dialogue.
Technical indicators, such as the 14-day relative strength index, suggest that Bitcoin’s rally may be approaching overbought territory, standing at 75 above the 70 level commonly viewed as overbought. Speculative interest remains high, fueled by expectations of a Securities & Exchange Commission approval for US spot Bitcoin ETFs by January and bets on Federal Reserve interest-rate cuts in the coming year.
Online brokerage Robinhood Markets Inc. reported a significant uptick in its November notional crypto trading volumes, indicating growing investor interest in the cryptocurrency market. The longevity of Bitcoin’s rally, however, hinges on the impending decision regarding the spot ETF, as highlighted by research provider Kaiko in a note. The market awaits this crucial decision to gauge the sustainability of Bitcoin’s current upward trajectory.
In conclusion, Bitcoin’s impressive surge to a more than 19-month high not only underscores its resilience amidst market fluctuations but also prompts anticipation and speculation about the cryptocurrency’s potential trajectory in the evolving financial landscape.
Source: Bloomberg
