Bitcoin wants to break the bond with stocks
(Our weekly analysis of the wild world of cryptocurrencies)
By Lisa Pauline Mattackal and Medha Singh
Nov 1 (Reuters) – After months of tears and tantrums, bitcoin wants to split with the stock markets.
The cryptocurrency, which has been closely correlated with tech stocks for much of its fiery 2022, is staging one of its strongest efforts yet to break out.
Its 30-day correlation with the Nasdaq fell to 0.26 last week, its lowest level since early January, with a measure of 1 indicating the two assets are moving in lockstep.
The correlation, which shows the degree to which the two move in sync with each other over a 30-day period, has hovered above 0.75 for much of the year and at times has approached perfect unison – at 0.96 and 0.93 in May and September.
For some crypto supporters, any bitcoin breach from Big Tech is a sign of strength.
“The latter’s growth has been somewhat lost, and investors are looking for the next growth industry. Bitcoin and crypto are one of the ‘next’ growth industries,” said Santiago Portela, CEO of FITCHIN, a Web3 gaming ecosystem.
Indeed, the nascent disconnect coincides with a period of comparative calm and consolidation for the teenage cryptocurrency a year after it began its epic dive from the heady heights of $69,000 last November.
Bitcoin hovers near one-month highs around $20,500 and rose more than 5% last week, outpacing the Nasdaq’s 2% gain as poor quarterly results from Microsoft, Alphabet, Meta and Amazon weighed.
HODLERS HOLD ON
However, the crypto winter has been cold and harsh.
The total market capitalization of cryptocurrencies has shrunk by more than a third to $984 billion from nearly $3 trillion in November 2021, according to CoinMarketCap.com.
Market participation has also declined, with the average daily trading volume for digital asset products falling to $61.3 million as of Oct. 25, far from the daily volumes of around $700 million seen last November, CryptoCompare data shows.
Nevertheless, months of sustained selling have failed to shake out the old hands, which are digging in despite a bleak economic backdrop.
The dollar amount held in bitcoins that have not been traded for three months or more is at an all-time high, indicating the accumulation of long-term holders, or “HODLers,” according to blockchain data firm Glassnode. The name of that group of diehard crypto investors emerged years ago from a trader who misspelled “hold” on an online forum.
Furthermore, a record 55,000 bitcoins were withdrawn from the largest exchange Binance on October 26, according to analysis platform CryptoQuant showed, flows that typically signal that coins are moving to wallets for long-term storage.
“BTC’s holder base has changed drastically from being heavily weighted towards speculators, who largely entered 2021, to the almost cult-like community of ‘HODLers’ who would not sell their BTC in almost any macro circumstance,” said Stéphane Ouellette , CEO of crypto derivatives provider FRNT Financial.
“The market now looks to the Fed meeting next week for further confirmation of the collapse of the risk asset/BTC correlation.”
NEXT FOR FICKLE BITCOIN?
Samuel Reid, chief executive of consultancy Geometric Energy Corporation, said heavy outflows from exchanges could potentially indicate that some big buyers “sniffed out” the end of the bear market.
Still, it’s anyone’s guess whether volatile bitcoin will start to rally, or slide again, or whether it will quickly return to the embrace of tech stocks.
For the foreseeable future, macroeconomics remains the driver of a market that remains highly speculative.
“The more speculative crypto is, the more it’s tied to macro,” said Alex Miller, CEO of blockchain firm Hiro Systems.
“It comes back to, what are the use cases and what is the productive capability of the asset? The more it is used for other things, the less it will be tied to macro.”
(Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Additional reporting by Alun John in London; Editing by Vidya Ranganathan and Pravin Char)
