In a post on Wednesday, Bloomberg analyst Mike McGlone stated that while the future of the stock market would likely be determined by the United States Federal Reserve’s tightening, Bitcoin continues to be a “wildcard” that may defy the trend.
“Bitcoin is a wild card that’s more ripe to outperform when stocks bottom, but transitioning to be more like gold and bonds.”
More information was provided by the commodities strategist in a report published on Wednesday, which noted that despite a “strong headwind” against high-risk assets, Bitcoin was poised to make a strong recovery from the bear market.
“It’s typically a matter of time for the fed funds gauge to flip toward cuts, and when it does, Bitcoin is poised to be a primary beneficiary.”
While gold and treasury bonds would also move in the same direction as Bitcoin the paper states that Ethereum “may have a higher correlation with stocks.”
In addition to several significant interest rate increases throughout 2022, the Federal Reserve has increased its quantitative tightening. The most recent spike accounted for a 75 basis point increase from July.
Despite Bloomberg’s bullish take, however, other experts believe that Bitcoin and equity markets have become more correlated than before. Some also say that the correlation between the S&P 500 index and BTC was approaching 100%, while a number of IMF economists claimed to have seen a 10-fold increase in correlation between crypto and equity markets in some regions of the world.
Although the precise timing of the Fed’s quantitative tightening is unknown, some economists forecast the endgame will start “at some point in 2023,” according to a Bloomberg report published in August.
By selling its accumulated assets, primarily bonds, a central bank can tighten up the money supply in the economy. This process is known as quantitative tightening. The process by which the central bank shrinks its inflated balance sheet is known as “balance sheet normalisation” as well.
Other analysts, however, disagree with Bloomberg’s upbeat assessment and think that there has been an increase in the correlation between Bitcoin and equities markets. Some suggest that the S&P 500 index and Bitcoin have a correlation that is nearly 100%, while several IMF economists claim that the correlation between cryptocurrency and equities markets has increased by ten times since 2017.