Bitcoin Surges Amid Growing Fervor for a Spot ETF
Bitcoin has surpassed $35,000, driven by increasing excitement surrounding a spot Bitcoin exchange-traded fund (ETF). Analysts believe that the mounting hype is propelling cryptocurrency forward while stocks on Wall Street remain relatively subdued. The market is responding to the growing likelihood of a spot ETF’s approval, albeit with a lagged effect, according to K33 Senior Analyst Vetle Lunde. In the past week, Bitcoin has surged by 24%, while the S&P 500 has dropped by 2.5% and the Nasdaq Composite has slipped by 3.3%. A spot ETF for Bitcoin could be a significant catalyst for attracting institutional and retail investors due to easier access to the cryptocurrency.
Bitcoin’s Decoupling from Stocks
In recent years, Bitcoin has shown a decreasing correlation with equities, although it closely followed stock movements in 2022, as reported by K33 Research. Prior to its recent surge, Bitcoin’s correlation with stocks had already significantly weakened. Market participants need to acknowledge this changing correlation story over the past year, but it will take time for widespread recognition.
Bitcoin’s Correlation with Stocks
Bitcoin’s correlation with the Nasdaq and the S&P 500 has decreased from 0.79 and 0.82 in May to 0.20 and 0.16, respectively. A correlation value of 1 indicates that two assets always move in the same direction, while a value of -1 signifies the opposite.
The Impact of Federal Reserve Policies
In 2022, as the Federal Reserve increased borrowing costs to address high inflation levels, both stocks and cryptocurrencies faced pressure. However, this pressure stemmed from different reasons, according to James Butterfill, head of research for CoinShares. While higher borrowing costs affected publicly traded companies negatively, an increase in yields on assets like U.S. Treasuries presented strong competition to Bitcoin as a store of value.
Butterfill notes that there is now a stronger correlation emerging between stocks and bonds due to rising interest rates set by the Fed. As a relatively uncorrelated asset, Bitcoin is attracting interest from investors who seek diversification options.
Expectations of Fed Interest Rate Hikes
Expectations of a December interest rate hike by the Federal Reserve have declined over the past week, according to the CME Group’s Fed Watch Tool. If the Fed signals its readiness to cut interest rates soon, it is likely that Bitcoin will further diverge from equities. Butterfill suggests that rate cuts would negatively impact equity markets as they would indicate an impending recession. Conversely, if the Fed admits to making a mistake, it could benefit Bitcoin.
Hot Take: Bitcoin Surges Amid Growing Excitement for Spot ETF
Bitcoin has soared past $35,000 on the back of increasing enthusiasm surrounding a spot Bitcoin ETF. This surge is driven by the market’s anticipation of the approval of a spot ETF, which would make it easier for institutions and retailers to gain exposure to Bitcoin. In contrast, stocks on Wall Street have remained relatively lackluster. The correlation between Bitcoin and equities has been declining over the past year, and while it takes time for this shift to be fully recognized, it signifies a changing landscape in the market. If the Federal Reserve signals interest rate cuts, the divergence between Bitcoin and stocks is expected to intensify.
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