- Bitcoin deviates from the previously observed correlation with the stock market
- Could decoupling be a good thing for BTC in the future?
Bitcoin has maintained a significant degree of correlation with the stock market for quite some time. But what happens if it loses this correlation and how will this impact BTC’s price action?
The influx of institutional investors into Bitcoin and crypto in general is the main reason for the correlation with the stock market. Cryptocurrencies therefore benefited from the influx of liquidity from institutions seeking to diversify their investments.
Although this trend continued for some time, recent observations indicate that a decoupling may be occurring.
Bitcoin moved along with the NASDAQ until recently. However, BTC’s bearish performance this month underlines the growing divergence as the NASDAQ continues to climb the charts.
Source: TradingView
A sign of the times?
While some may view Bitcoin’s decoupling from its correlation with the NASDAQ as a bad thing, it may turn out to be the opposite. Fears of a recession have recently reached new peaks, raising the risk of a major stock market crash. However, many are also wondering if this would lead to a similar outcome for Bitcoin and the rest of the crypto market.
The decoupling raises hopes that Bitcoin will weather a recession much better than the stock market. Since BTC no longer moves in tandem with the NASDAQ, it also strengthens the plausibility of Bitcoin being seen as a safe haven in case a recession hits.
The end of correlation could also promote the idea of Bitcoin maturing as a standalone asset. This could further support the flight to safety narrative – an outcome that would align with the changing dynamics recently seen in the market.
For example, BTC’s lower price tag over the past four weeks has attracted more HODLing. In fact, about 80% of Bitcoin holders are currently making profits despite the recent dip – an indication of strong demand at lower prices.
The retail class of cryptocurrency holders added an average of 2.91 million BTC to their addresses over the past four weeks. Institutions contributed about 80,000 BTC to the selling pressure. Meanwhile, whale stocks remained unchanged over the same period.
Source: IntoTheBlock
Finally, Bitcoin’s currency flows highlighted why Bitcoin’s price is moving at press time.
The alternating currents have been negative in recent days. However, they saw a shift to positive net flows over the past 24 hours, indicating that outflows are in favor of an uptrend.
Source: CryptoQuant
Bitcoin’s latest price movements reflect short-term directional uncertainty. Currently, this is supported by the lack of a strong enough catalyst for a strong upward or downward move.