Journalist
Posted:
- Bitcoin outperformed traditional US stocks in 2024.
- The higher correlation has influenced Bitcoin’s safe haven story.
The crypto market and traditional finance started moving together in 2024, after a prolonged disconnect last year.
Particularly the correlation between Bitcoin [BTC]and popular stock indexes such as S&P 500 and NASDAQ 100 rose to a two-month high on Feb. 19, according to analytics firm IntoTheBlock.
Source: IntoTheBlock
‘Risky’ markets are getting closer
AMBCrypto studied the price trajectories of the two asset classes and found a degree of bullishness in both.
Bitcoin came out on top, rising 16% this year, while the S&P 500 Index posted a decent 5.5% gain in the same time.
IntoTheBlock attributed the rally to strong expectations of interest rate cuts by the US Federal Reserve.
With inflation cooling significantly, market participants were hoping for a dovish stance, which would benefit risky assets like Bitcoin and stocks.
Source: trading view
Take it with a pinch of salt
Although the strong correlation was dependent on higher market liquidity and therefore higher future prices, such a scenario should be viewed with caution.
Bitcoin proponents have long positioned it as a safe haven, or an investment whose value is expected to be stable or even rise during economic downturns, similar to precious metals such as gold.
Simply put, to be viewed by investors as an inflation hedge, an asset must demonstrate significant distance from traditional markets
If Bitcoin now starts behaving like a risky asset, this narrative will be turned upside down.
The other problem, ironically, is the launch of spot Bitcoin ETFs. The investment vehicle makes it much easier for TradFi participants to trade Bitcoins.
It was highly likely that these investors would treat Bitcoin like another risky asset, causing it to respond to macroeconomic triggers in the same way as Wall Street.
Such volatility may not be ideal for Bitcoin in the long run.
How much are 1,10,100 BTCs worth today?
That said, Bitcoin’s realized volatility has fallen significantly over the past month, according to AMBCrypto’s analysis of Glassnode’s data.
It remains to be seen whether higher inflows into ETFs will cause more volatility in the crypto market.
Source: Glassnode