Bitcoin Close to $45,000 as Correlation Between Stocks and Crypto Fades

Since Monday, Bitcoin has witnessed a resurgence in its price amidst the ongoing Russia-Ukraine conflict. The foremost crypto asset has gained almost 20% since trading opened this week, with its price trading around $44,000. Its market capitalization also crossed the $850B threshold at a point.

The sudden spike has also caused altcoins to post corresponding gains. Ethereum, whose daily options values matched Bitcoin’s recently, surged past $3,000 for the first time in a while. It also broke above its 50-day average price. Other crypto assets such as Terra, Avalanche, and Fantom, performed well over the period too.  

Crypto Recovers as War Continues, Decouples from Stocks

Bitcoin’s Price spike has seen it lose its burgeoning correlation with equities. This decoupling has come after the IMF raised concerns over the growing synchronization between stocks and BTC. It stated that the relationship combined with the increasing adoption of digital assets posed a threat to the stability of the global financial markets.

The reason for the decoupling may be closely linked to the ongoing invasion of Ukraine.  Reports suggest that the increased demand for Bitcoin in both countries to help fund a defense against invading forces (Ukraine) and to escape sanctions (Russia) could be partly responsible for the price surge.

The start of the crisis saw the financial market hit with increased volatility as both the crypto markets and the stock market plunged downwards. While the equities market recorded a more than 2% fall in value, the digital assets market plummeted by almost 10%. The fall further bolstered the belief that both asset classes were closely correlated.

Meanwhile, Gold performed strongly amidst the chaos, rising by 2% and eventually gaining 8% since 2022 commenced. spot gold rose 1.7% to $1,939.97 per ounce, while US Gold futures climbed 1.8% to $1,943.90.

However, as the invasion continues, the markets have reacted differently. While digital assets rallied, equities fell, with the S&P 500 recording a 1.5% loss. Gold, as seen in the chart above, relatively held its gain since the start of the invasion.

The performance of these financial instruments shows that more investors may be viewing Bitcoin as a better risk-off asset and a hedge against inflation and conflict. Also, it debunks the notion that Gold is a more robust risk asset than Bitcoin and substantiates JP Morgan’s initial stance.

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What Crypto’s Decoupling from Stocks Could Imply

Market participants believe the decoupling between Bitcoin and the S&P 500 indicates the crypto assets transition from a risk-on to a risk-off asset. However, they think more time is required to confirm if this is a long-term trend or a flash in the pan. Derek Lim, head of crypto insights at Bybit, reiterated this sentiment.

“Whether this decoupling between BTC and the equities market is a long-term trend or merely a short-term occurrence is still pretty much up in the air, we will still need to monitor how the crypto market reacts to news in the next few days and weeks.”

Lim further noted that sanctions imposed on Russia are also responsible for the declining correlation between Bitcoin and equities. He stated that he expects the crypto market to witness reduced volatility in the near term. 

Further backing the muted points, Mikkel Mørch, an executive director at crypto hedge fund ARK36, agrees Bitcoins increase could be crucial for its use case. He highlighted that the increasing demand for crypto in a crisis augurs well for it, especially as holding large quantities of cash may be risky. He pointed to rising inflation levels and broader macroeconomic woes as reasons why holding fiat currency can be risky. 

Do you think BTC has lost its correlation with the equities market? Let us know your thoughts in the comments below.