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Bitcoin’s correlation with tech stocks is starting to recover. Why is this important to the big players?

Bitcoin’s correlation with tech stocks jumps to highest level since August 2023. According to Crypto traders, this reflects the market’s improved risk appetite. Bitcoin is again seen as a growth exposure rather than a hedge against inflation.

The 90-day correlation coefficient between Bitcoin and the Nasdaq 100 technology index reached 0.46 this week, the highest level since late August last year.
/A coefficient of 1 means that the assets move in sync, while minus-1 will show that they move in opposite directions/

Bitcoin-Trades

After the Fed began raising its target overnight interbank lending rate in early 2022, the correlation jumped to more than 0.8, the highest since Bitcoin gained mainstream popularity.

Bitcoin proponents have long touted the coin as an uncorrelated asset, one that is not beholden to any government and is unlikely to be influenced by outside forces or factors.
-When it was first introduced to the world in 2008 by Satoshi Nakamoto, the goal was to create a decentralized currency outside the control of governments and central banks.
-Over the years, Bitcoin has been defined as a digital version of gold, an inflation hedge, and a store of value.

At the moment, however, Bitcoin’s correlation with Gold is beginning to “break down” as it begins to behave much more like a risky growth asset /which it actually is/ than as a defensive tool to hedge against inflation and economic decline/

XAU-BGN-Curncy

Why is this important? – Large funds and banks structure their portfolios in different asset classes, usually inversely correlated. The current rise in correlation between Bitcoin and the risky tech growth sector means that major players will reduce exposure to either asset to keep their portfolios balanced.

And although Bitcoin is gaining more and more popularity and recognition, there is hardly a second opinion on the question of which asset will be “affected” by the big players.


 Head Dealer Alexander Alexandrov

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