The cryptocurrency, which has been closely correlated with tech stocks for much of the rough 2022, is making one of its strongest breakout attempts yet. Its 30-day correlation with the Nasdaq (.IXIC) fell to 0.26 last week, its lowest level since early January, where the 1 measure shows the two assets are moving in lockstep. The correlation, which shows the degree to which the two move in sync with each other over a 30-day period, has hovered above 0.75 for much of the year and at times has approached perfect unanimity — at 0.96 and to 0.93 in May and September. For some cryptocurrency advocates, any break-up of bitcoin by Big Tech is a sign of strength. “The growth of the latter has been somewhat limited and investors are looking for the next growth industry. Bitcoin and cryptocurrencies are one of these ‘next’ growth industries,” said Santiago Portela, CEO of FITCHIN, a Web3 gaming ecosystem. The nascent disconnect indeed coincides with a period of comparative calm and consolidation for the teenage cryptocurrency, a year after it began its epic disconnect from the heady heights of $69,000 hit in November last year. Reuters Graphics
OWNERS ARE DEALING
However, the crypto winter was cold and harsh. The total market cap for cryptocurrencies has shrunk by more than two-thirds to $984 billion from nearly $3 trillion in November 2021, according to CoinMarketCap.com. A representation of bitcoin is seen in an illustration image taken June 23, 2017. REUTERS/Benoit Tessier/Illustration/File Photo Market participation has also declined, with the average daily trading volume of digital asset products falling to $61.3 million as of Oct. 25, a far cry from the roughly $700 million daily volume seen last November, according to data of CryptoCompare. But months of persistent selling have failed to sway the old hands, who are digging in despite the bleak economic environment. The dollar wealth held in bitcoins that have not been traded for three months or more is at an all-time high, indicating accumulation by long-term holders, or “HODLers,” according to blockchain data firm Glassnode. The name for this group of hardcore crypto investors came about years ago from a trader who misspelled “hold” on an online forum. In addition, a record 55,000 bitcoins were withdrawn from the largest exchange Binance on October 26, according to analytics platform CryptoQuant, flows that usually signal that coins are being moved to wallets for long-term storage. “BTC’s owner base has drastically changed from heavily weighted speculators, who came in big in 2021, to the cult-like ‘HODLer’ community, who would not sell their BTC under almost any macroeconomic circumstances” , said Stéphane Ouellette. CEO at crypto derivatives provider FRNT Financial. “The market is now looking to the Fed meeting next week for further confirmation of the risk asset/BTC correlation analysis.”
NEXT FOR VOLATILE BITCOIN?
Samuel Reid, CEO of consultancy Geometric Energy Corporation said the big outflows from the stock market could possibly indicate that some big buyers are “sniffing” the end of the bear market. However, it is anyone’s guess whether the volatile bitcoin will start to rise, or fall again, or whether it will quickly bounce back into the arms of tech stocks. For the foreseeable future, the macro economy remains the driving force behind a market that remains highly speculative. “The more speculative a crypto is, the more connected it is to the macro,” said Alex Miller, CEO of blockchain firm Hiro Systems. “It comes back to, what are the use cases and what is the productive capacity of the asset? The more it’s used for other things, the less it’s going to be tied to the macro.” (This story has been corrected to say that the market value of cryptocurrencies has shrunk by two-thirds, not a third in the past year, in paragraph 12) Reporting by Medha Singh and Lisa Pauline Mattackal in Bangalore. Additional reporting by Alun John in London. Edited by Vidya Ranganathan and Pravin Char Our Standards: The Thomson Reuters Trust Principles. The views expressed are those of the author. They do not reflect the views of Reuters News, which, in accordance with the Trust Principles, is committed to integrity, independence and freedom from bias.
