27 Sep 2022

Bitcoin outperforming gold and equities in September, while correlations climb

After Tuesday’s morning relief in crypto, BTC is in the green in September, outperforming equity indexes and gold. While BTC has outperformed U.S. equities and gold in September, correlations have grown towards July highs.
Source: Tradingview
BTC is up 0.8% in September versus the USD and has outperformed both U.S. indexes and gold.Among major macro indices, the dollar strength index (DXY) is the only index seeing better returns than BTC. However, BTC’s performance is gauged versus the USD. Thus, while the dollar outperforms other major currencies, BTC has outperformed the USD this month.BTC’s recovery has not happened in isolation. The total crypto cap excluding stablecoins (TCC in the chart) is the second-best performer in September, also outperforming major asset classes.The underperformance of the total crypto cap is caused by ether weakness in September. Ether is the worst performing asset among those included in this chart. Nevertheless, this is caused by hype being priced in ahead of the merge. In Q3 2022, ETH has outperformed all assets included in this chart and is up 26% from the quarterly open. Equities (SPX -5.8%, NDQ -6%) and gold (-4.2%) have struggled amid the tightening macro conditions and have seen lacklustre performance since the Sep 13th CPI surprise and the Sep 21st FOMC.
Correlations climbing to July highs
While BTC has outperformed U.S. equities and gold in September, correlations are once again on a climbing trend.
Source: Tradingview
Following the CPI surprise and recent FOMC meeting, the 30-day correlation with Nasdaq and S&P 500 has grown to its highest level since early July, trailing near 0.7. Important macro events tend to coincide with surging correlations, as we illustrate below. Interestingly, BTC’s correlation to gold has also been growing in recent months, with the 30-day correlation with gold climbing to a yearly high of 0.52 this week.
Intraday correlation: The FOMC press conference was a correlation 1 moment
This chart is a visual representation of the FOMC effects to illustrate the extremely tight correlation between BTC and U.S. equities amid last week’s FOMC press conference. The chart shows the 60-minute rolling correlation based on minute returns of BTC, S&P mini futures, and Nasdaq mini futures on September 21st.
Source: Tradingview
During the FOMC press conference, the rolling 60-min correlations between BTC and U.S. equities soared towards 0.95, showcasing how coordinated the market reaction is during important macro events. From the moment the FOMC statement is released to the press conference is wrapped up, risk assets tend to move as one coordinated organism. This illuminates why it’s worth paying attention to important macro events, and you should already mark the September U.S. CPI release on October 13th and the next FOMC press conference on November 2nd in your calendar.
Most volatile FOMC meeting ever
BTC’s intraday volatility during last week’s FOMC meeting reached new highs, with the average minutely price movement during the FOMC press conference soaring to 0.8% in the sixty minutes following the statement release.
Source: FTX API (Minutely trade data during FOMC meetings) *Dates included: 2021: Apr 28th, Jun 16th, Jul 28th, Sep 22nd, Nov 3rd, Dec 12th. 2022: Jan 26th, Mar 16th, May 4th, Jun 15th, July 27th, Sep 21
The Federal Reserve increased interest rates by 75bps, aligning with market expectations. However, the median forecast for the ensuing hiking process overshot expectations leading to short-lived market mayhem in the minutes that followed the statement release.Bitcoin fell 5% in one minute after the FOMC statement was released and recovered by 2.7% in the next minute. The following hour remained volatile, with BTC’s average minutely volatility reaching 0.8% during the FOMC hour, making this the most volatile BTC reaction to a FOMC statement ever.The FOMC made it clear that the Federal Reserve is fully committed to reaching the 2% inflation target, and the market should expect no near-term relief from a softening FED.BTC is thus likely to trade in a highly correlated environment during important macro releases in the coming quarter. Investors should be open to the idea that the crypto market will be constrained by the hiking and liquidity tightening cycle until the FED communicates that it’s reached an appropriate restrictive interest rate level.
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