Something strange is happening with the Bitcoin (CRYPTO: BTC) price in 2023.
At the time of writing, BTC is trading for US$24,173 (AU$35,385). That’s up 46% from what the world’s original crypto was worth on 1 January, according to data from CoinMarketCap.
That’s also more than four times the 11% gains posted by the Nasdaq Composite Index (NASDAQ: .IXIC) so far in 2023.
What’s strange about that?
Is the Bitcoin price correlation to stocks vanishing?
Here’s what we wrote in early January when we covered the 65% Bitcoin price drop over the course of 2022:
If nothing else, 2022 showed that [Bitcoin] is closely linked to the performance of growth stocks. And highly susceptible to the impacts of rising interest rates.
Yet here we are, less than two months later, with central bankers still ratcheting up interest rates to combat stubbornly high inflation, and Bitcoin has proven surprisingly resilient.
Here’s what we mean.
According to figures supplied by Bloomberg (using yesterday’s slightly higher Bitcoin price), “A 40-day correlation between Bitcoin and the S&P 500 has slid below 0.3 to the lowest since 2021 from a May record above 0.8.”
A correlation of 1 would mean the Bitcoin price moves precisely in line with the S&P 500 Index (SP: .INX).
Crypto research company Kaiko noted, “Crypto has been decoupling from traditional assets in 2023 … crypto-specific events increasingly drive the market.”
JPMorgan Chase strategist Nikolaos Panigirtzoglou pointed to the greater influence of retail investors in 2023, with many corporates having abandoned their forays into crypto in 2022 following several digital token meltdowns and exchange collapses.
“This positive retail impulse year-to-date is naturally more dominant in crypto given the absence of institutional investors at the moment,” Panigirtzoglou said.
“It became one of the themes to watch in 2022, crypto market correlation with traditional markets, as investors around the world reacted to rising inflation and subsequent rate hikes,” eToro market analyst and crypto expert, Simon Peters said.
“If the Bitcoin price does indeed move differently to macroeconomic events then it could provide significant support for using it as a hedge against other markets – akin to gold,” Peters added.
A word of caution
With that said, crypto investors should proceed with caution before making too much of this nascent trend. Or non-trend.
Let’s not forget the Bitcoin price crashed by 65% in 2022.
And the world’s top crypto remains volatile, trading as low as US$21,460 and as high as US$25,134 over the past 30 days.
Whether 2023 will see it continue to be decoupled from moves in global share markets remains to be seen.
