Normally, there is a very high correlation between bitcoin (BTC) and the Nasdaq, the US exchange for technology stocks. But recently the two are no longer equal. This is usually a sign that a major correction is underway.
Bank crisis cause crypto hype?
In general, the crypto market is highly correlated with stocks. After all, it’s all based on the same thing. If there is a lot of liquidity (‘available money’)
in the market, then asset prices rise. When there is little liquidity, markets fall. When there is a lot of money in the market, there is room for growth.
Recently, the latter has been the case. Investors were more than willing to put their money into risky investments. This was partly caused by the banking crisis. Several large banks have already gone under, including Silicon Valley Bank (SVB), Signature Bank and also First Republic Bank last month.
Investors saw crypto as an alternative to the banking system, which caused the coins to grow rapidly in value. Memecoins also benefited from the enormous hype. The new meme token Pepe (PEPE) literally rose from scratch to a market value of more than a billion in a month.
Bitcoin falls, correlation with stocks breaks
But now bitcoin is down slightly. By ‘light’ we mean at the time of writing about 10% measured from the local top, with which it has not yet broken the consolidating formation.
However, BTC has broken its correlation with the Nasdaq. Bitcoin is highly correlated to technology stocks. One explanation for that is that it is relatively risky in theory and represents both software.
Often, if bitcoin initiates a price change, the Nasdaq will follow. Bitcoin is seen as riskier, which is why investors presumably sell their coins before selling their shares. The Nasdaq is currently still near its high of the past few months. Stock market analyst Mike McGlone recently made a similar statement.