With the ongoing “crypto winter”, digital investors are skeptical about the market and have gone back to focusing on the mood of the US stock market to ascertain if the worst might be over.
The stock has mostly been up over the past few weeks and so has Bitcoin, which has added 15% over the past month. After a significant drop in June, the 90-day correlation coefficient between bitcoin and the S&P 500 is now back at 0.65, one of the highest readings in Bloomberg data going back to 2010. A coefficient of 1 indicates that assets are moving in unison, while a coefficient of -1 indicates that they are moving in the opposite direction.
The stocks and crypto are moving in a similar fashion. The backdrop is a Federal Reserve that is hawkish and determined to rein in inflation, which has been been the cause of volatility for a variety of assets in 2022.
However, there is no way to know if the stock market and crypto market have hit the lows as bottoms become clear only after the fact, and it is likely to be around the end of this year or possibly early next year. Both submissions will be revisited.
According to Mike McGlone, an analyst at Bloomberg Intelligence, “if equities are down”, the cryptocurrency could outperform itself. “There are few more powerful forces in the markets when the stock market falls with a higher velocity like in the first half. Cryptos are part of that ups and downs.”
According to analysts at Glassnode, a crypto researcher, bitcoin’s active addresses are firmly within “a well-defined downtrend channel”. He further added that network activity “suggests that so far there has been little inflow of new demand.”
At the same time, the transactional demand has traded sideways or lower in recent weeks, suggesting that “only the stable base of higher conviction traders and investors remain.” And on-chain transaction fees are in the bear-marker territory – seeing an uptick there could be a signal of recovery, once it happens.
“The 2022 bear market for the digital asset space has been historically negative,” the analysts wrote in a note. “However, after such a sustained period of risk-off sentiment, attention turns to whether this is a bear market relief rally or the start of a sustained bullish rally.”
July was a great period for Bitcoin, Ether, and others. Bitcoin rose by 27 percent, the most since October 2021, and the No. 2 token added 70 percent in its monthly performance since January 2021. According to CryptoCompare, total volumes of the Tether stablecoin for Bitcoin and Ether rose, suggesting that investors have been looking at them as safer places within the crypto universe.
Even though the price of the crypto has risen recently, it is still well below the highs it achieved at the end of last year. Bitcoin is hovering around $23,000, down from around $69,000 in November. Even eye-catching developments such as Coinbase’s new partnership with BlackRock have not been able to wake the coin from its sluggishness and give it high momentum.
“Crypto has more volatility so therein is riskier, and it would make sense that investors need to rebuild confidence after the downdraft they’ve suffered through,” said Katie Stockton, founder and managing partner of Fairlead Strategies, a research firm focused on technical analysis.
He added that crypto investors are still taking cues from equities, but it goes both ways. “It seems reasonable because both are risky assets.”
