Correlations climbing to July highsWhile BTC has outperformed U.S. equities and gold in September, correlations are once again on a climbing trend.
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 momentThis 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.
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 everBTC’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.
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.
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