18 Apr 2022
Are we nearing a correlation 1 moment?
BTC’s correlation to tech is climbing, while gold and the DXY are increasingly negatively correlated as fear and hawkish policies are on everyone’s lips.
The broad financial markets are in an odd state at the moment. Bitcoin’s 30-day correlation to tech stocks has climbed to highs not seen since July 2020, while bitcoin’s correlation to gold has plunged to all-time lows.Similarly, the bitcoin correlation to the dollar strength index is sitting at low levels of -0.53. The dollar is currently strengthening, with the DXY sitting at its highest level since March 2020. The strengthening dollar is a result of the FED’s hawkish stance and reinforced expectations of faster U.S. policy tightening while ECB and other central banks are more dovish. ECB’s Lagarde has recently commented that the ECB has no clear time frame for when ECB rates will start to rise, and the ECB revealed a more dovish response to the inflation news than the market expected.Inflation expectations and FED policies impact tech. Costs of borrowing become more expensive and the growth projections narrow. Bitcoin’s elevated correlation with tech stocks since March 2020 paints a picture of institutional investors bundling bitcoin with other risk assets.Meanwhile, gold is currently playing out its role as a hedge against turmoil, evident by the low correlation and sharp fund inflows.It’s clear that the burdensome months in tech have been the key force behind the poor performance of the crypto sector since November. However, over time, it’s unlikely that the high correlation to tech will remain at such elevated levels as today.