Bitcoin (BTC) and the U.S. inflation-adjusted bond yield have taken an unexpected turn, moving together but in opposite directions. This shows that there’s a complicated connection between the world of cryptocurrency and traditional finance.
The latest data signals a noteworthy negative correlation between Bitcoin and the 10-year U.S. inflation-indexed security, shedding light on the evolving dynamics that are shaping the crypto sector. The 30-day correlation coefficient has slid from +0.28 to -0.72, marking the most substantial negative correlation in four months. This phenomenon underscores the renewed influence of conventional market factors on the volatile Bitcoin price.
Source: TradingView
Historically, these correlation metrics have indicated whether assets move in harmony or opposition, with a reading of 1 suggesting synchronized movement and -1 implying a stark divergence.
The recent reading of -0.72 accentuates how real yields are impacting investor behavior in the crypto realm. When real yields are negative, riskier alternatives like cryptocurrencies and tech stocks tend to gain traction, as witnessed during the post-pandemic era following the March 2020 crash. Conversely, when real yields rise and turn positive, investors gravitate towards more secure fixed-income securities.
This intriguing shift highlights Bitcoin’s growing susceptibility to traditional market forces, which had been momentarily overshadowed by optimism surrounding the potential approval of a spot ETF back in July. This tug-of-war between crypto’s inherent volatility and the gravitational pull of real yields underscores the evolving nature of Bitcoin’s correlation with mainstream finance.
In a parallel development, Bitcoin’s decoupling from its historical correlation with tech stocks adds another layer of intrigue to the unfolding narrative. Data from crypto research platform Kaiko reveals a drastic divergence between Bitcoin and the top US stocks tracked by the Nasdaq 100 index. The once dominant 60% correlation observed in 2022 has plummeted to a mere 3% during June, underlining the cryptocurrency’s trajectory towards independence.
This departure from its previous correlation can be attributed in part to Bitcoin’s price surge, catalyzed by notable financial giants like BlackRock, Invesco, Valkyrie, WisdomTree, and HSBC expressing interest in launching Bitcoin exchange-traded funds. These moves towards institutional crypto adoption have rekindled investor optimism and propelled Bitcoin’s price beyond the $30,000 mark for the second time this year.
The intricate interplay between Bitcoin’s correlation with real yields and its newfound autonomy from tech stock ties ushers in a new era for the crypto landscape. This phenomenon not only suggests that Bitcoin is establishing its unique path but also underscores the enduring influence of traditional financial indicators in an increasingly interconnected market.