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Bitcoin-S&P 500 30-day correlation explodes to new all-time high

Over a decade has passed since it was first launched in 2009. That’s how long it took to convince people that a virtual asset can have a value that isn’t backed by a physical asset, a government, or a central bank. The whole market capitalization the cryptocurrency reflects this period of conviction. Bitcoin was the sun of the crypto solar system around which all other digital assets revolve.

Bitcoin-S&P 500 30-day correlation explodes to new all-time high, Crypto Trading News
As shown in the chart above, the tipping point happened in 2018. Each new technology tends to follow a similar pattern. The first wave of early adopters keep the interest alive, which is then picked up by corporations and later by institutional investors. When the latter happens, they amplify the buy-in signal, effectively legitimizing untested technology for those still unsure about taking the plunge.

This is exactly what happened to Bitcoin when it was the Blockchaintechnology popularized. Initially, BTC was very difficult to access. However, several various bitcoinWallet-styles are available today, making the technology easier and more convenient to access. In a similar evolutionary light, venture capital (VC) funds have started to flow into blockchain projects on a large scale.

VCs invested overall $28 billion into the crypto space in 2021. In the first quarter of 2022, this number reached $10 billion.

The past two years have been particularly active as people used crypto volatility to land on the upside. In turn, such activities created a feedback loop between retail and institutional investors. US monetary policy continued to encourage exploration of new crypto frontiers as fears mounted that pumping trillions into the economy would not end well.

Fast forward to 2022 and we have predictable results. A massive increase in the money supply triggered one 40-year high CPI inflation rate of 8.5% recently . Equally predictably, the Federal Reserve is attempting to reverse the damage with monetary tightening. Specifically, the Fed is trying to cool down an overheated economy by raising interest rates and shrinking its balance sheet.

This is bad news for the stock market, which has recently become comfortable with cheap liquidity through borrowing. However, it turns out that this is also bad news for the crypto market.

Relationship between Bitcoin and the stock market

It is safe to say that Bitcoin has evolved from its original vision into another project. The pseudonym Satoshi Nakamoto created Bitcoin as a “peer-to-peer electronic cash system” primarily to counter the central bank. He made this clear by embedding the following message in Bitcoin’s Genesis block:

“The Times 03/Jan/2009 Chancellor on brink of second bank bailout.”

But as more money poured into Bitcoin from Wall Street and Wall Street-related sources, that transformed Bitcoin into another animal. Instead of an electronic cash system or even a hedge against inflation Bitcoin has evolved into a risky, stock-like asset.

In 2022, this connection will be clearer than ever. If we compare Bitcoin with the stock market representative, the , the two assets have a all-time high-Synchronization achieved.

Bitcoin-S&P 500 30-day correlation explodes to new all-time high, Crypto Trading NewsBTC/SPY correlation chart
Consequently, as the Fed’s tightening policy affects the stock market’s access to cheap credit, Bitcoin is also taking a hit from the central bank. Additionally, with a market cap of $38.3 trillion representing the richest companies with the deepest pockets, the S&P 500 has a much larger psychological cushion than novelty bitcoin, which currently has a market cap of around $600 billion Has. As a result, the decline for bitcoin is much steeper.

Bitcoin-S&P 500 30-day correlation explodes to new all-time high, Crypto Trading NewsBTC/SPY correlation 30 days

Bitcoin is down 56% from its all-time high in November. This happened during a period of accelerating US inflation, meaning the world saw the US dollar’s depreciation in real time and without a doubt. However, the Fed’s tightening policy prevailed against this perception. What does that mean for Bitcoin and the crypto market in the future? Has bitcoin really failed as an inflation hedge as it seems?

From Decentralized P2P Money to Equity-Like Asset: Can Bitcoin Redeem Itself?

You may have noticed that people tend to speak of assets as self-contained entities. Only the title at the top asks “Can Bitcoin redeem itself?”. As elegant as this abbreviated representation may be, it obscures reality.

Bitcoin is not a thing in itself, but a signal-receiving platform. Institutional investors flooded them with their signals. The Fed, in turn, also sent out signals of its own. Likewise, retail investors absorbed their signals into a panic sell-off and exited the crypto market at a loss.

Those investors who are more resilient to signals will stay and reset bitcoin as an asset held by long-term holders while short-term holders exit the market. This is particularly evident among bitcoin miners, as their accumulation activity tends to increase when the price of BTC falls.
Bitcoin-S&P 500 30-day correlation explodes to new all-time high, Crypto Trading NewsBitcoin: Miner In-house Flow (Total) – All miners
This was also noticed by Glassnode, whose Data indicates that short-term holders BTC have mostly sold while long-term holders have been consistently buying BTC since the summer of 2021. Additionally, long-term holders have since made up a notable percentage of BTC holders 66% of the total Bitcoin supply hasn’t moved in the last year.

It’s still so early for Bitcoin. Although it was initially envisioned as a new form of digital cash and touted as an inflation hedge for digital gold, its correlation with the S&P 500 suggests investors currently view it as a tech stock.

However, on-chain data suggests longtime holders see otherwise.

Source: Crypto News Deutsch

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