On January 25, market data provider Kaiko revealed that the 60-day correlation between Bitcoin (BTC) and the Nasdaq 100 has averaged close to zero since June 2023. This suggests that the two asset classes have become less correlated in recent months, potentially showing that their prices are increasingly decoupling.
Bitcoin Decoupling with Nasdaq 100?
Historically, Bitcoin has been highly correlated with traditional asset classes, particularly the Nasdaq 100, due to its association with risk-on sentiment and speculative trading. However, this recent divergence could signal a shift in their relationships.
Several factors could be behind this decoupling. The rise of institutional investors in the crypto market has led to a more diverse set of participants and a broader range of investment strategies. Consequently, this could reduce reliance on traditional market signals as a driver of Bitcoin price movements.
The increasing adoption of Bitcoin as a store of value and a medium of exchange could make it less susceptible to the same market forces as traditional assets. To illustrate, Microstrategy, a business intelligence firm whose shares trade on NASDAQ, has rapidly accumulated Bitcoin over the years, reading from Bitcoin Treasuries data.
According to its former CEO, Michael Saylor, one key feature advising this move is its borderlessness and, mostly, deflationary design. This feature makes Bitcoin an option as a store of value when inflation rages.
Additionally, Bitcoin has been adopted as an option for remittance, helping move value across borders cheaply and conveniently. El Salvador, a country in South America, has already approved Bitcoin as legal tender, meaning it can be used to pay for goods and services and settle taxes.
These critical developments and improving crypto regulations across leading economic hubs like the United States and Europe suggest that Bitcoin may be maturing into a more independent asset class with its unique investment characteristics.
What This “Decoupling” Means For Traders And Investors
The weakening correlation between Bitcoin and the Nasdaq 100 could have implications for investors and traders. It could allow investors to diversify their portfolios and reduce their exposure to traditional market risks.
For traders, it could create new opportunities for arbitrage and speculation. This is notable considering the excitement that the recent approval of spot Bitcoin exchange-traded funds (ETFs) would likely trigger a bull market in 2024.
Bitcoin remains under pressure, trending at around $40,000. While on-chain data suggests that spot Bitcoin ETF issuers have been gobbling up thousands of coins, this hasn’t translated to gains for the most valuable cryptocurrency. The medium-term resistance remains at $50,000.
Feature image from Canva, chart from TradingView