By Lisa Pauline Mattackal and Medha Singh
(Reuters) – It’s been a good month for bitcoin – and we haven’t said that in a while.
After months of freefall, it jumped more than 17% in July, its best performance since October. Ether rose 57%, the strongest monthly gain since January 2021.
The rally was in tandem with gains in riskier assets such as stocks as investors bet that economic weakness could deter the Fed from tightening monetary policy aggressively.
Bitcoin’s 40-day correlation with the tech-focused Nasdaq now stands at 0.90 – up from 0.41 in January – where 1 means their prices are moving in perfect lock step.
The leading cryptocurrency has been consistently positively correlated with the Nasdaq since late November, unlike in previous years where it would routinely turn negative, meaning they moved in opposite directions.
Itai Avneri, deputy CEO of cryptocurrency trading platform INX, described July’s convergence as “good news.”
“It means that institutional investors are looking at bitcoin like any other asset,” he said. “When the market turns — and it will turn — these institutions will come back and invest in crypto.”
Gains weren’t limited to bitcoin, as the value of the global cryptocurrency market crept back past $1.15 trillion last month, adding over $255 billion since the end of June, CoinGecko data showed.
Assets under management in digital asset investment products rose 16.9% to $25.9 billion in July, reversing June’s 36.8% decline, according to research firm CryptoCompare.
However, trading has been thin – indicating that many investors believe it is too early to be bullish in a deeply uncertain macro backdrop with inflation running rampant and America and Europe staring down the barrel of a recession, not to mention the implosion of some major crypto players .
Average daily volumes across all digital asset investment products fell 44.6% to $122 million, the lowest since September 2020, CryptoCompare found.
“In the medium term, we are bearish (on crypto) despite the current rally, this is consistent with our stance on stocks,” wrote researchers at MacroHive on Friday, citing inflation, recession risks and interest rate hikes.
Bitcoin Correlation with Nasdaq:
FAR FROM $60,000
Bitcoin is currently trading at $23,336, consolidating around $24,000 after touching that level last week.
It will likely continue to trade in a tight range around $20,000, plus or minus 10% to 15%, until there is more clarity on the economy’s path, according to Chris Terry, vice president at lending platform SmartFi.
“We could be in this deadlocked market for weeks and weeks.”
On the flip side, if the U.S. enters a prolonged period of recession and the Fed is forced to cut interest rates, bitcoin could benefit, said Russell Starr, CEO of Valour, which makes exchange-traded products for digital assets.
“You’d have to see another quarter of recession before you see a resumption back to the high $60,000 levels,” he said.
For investors who dipped into crypto during its surge at the height of easy monetary policy from the pandemic, the next few months could be quite bumpy, according to Adrian Kenny, senior sales trader at GlobalBlock.
“There is still an undoubtedly significant mountain to climb in terms of ‘normality’ or any hope of a return to the peaks of 2021 anytime soon.”
(Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Vidya Ranganathan and Pravin Char)