In a remarkable display of resilience, Bitcoin has once again surged to a more than 19-month high, shrugging off a downturn in global stock markets. The cryptocurrency’s ability to detach itself from traditional assets was evident as it jumped as much as 4.5% to approximately $43,940 in New York on Tuesday. This rally comes on the heels of a significant surge over the preceding Sunday and Monday, propelling Bitcoin above $40,000 for the first time in nearly two years. Meanwhile, global shares and bonds have been grappling with losses since the start of the week.
Sean Farrell, the Head of Digital Asset Strategy at Fundstrat Global Advisors LLC, highlighted this divergence, emphasizing the current low correlation of crypto with other traditional macro assets. The diminishing correlations of Bitcoin with stocks and gold throughout 2023 have played a role in its remarkable 160% climb, driven in part by expectations that the US will greenlight its first spot Bitcoin exchange-traded funds (ETFs), potentially expanding demand for the token.
Notably, Bitcoin has not only stood out from traditional assets but also within the digital asset market itself. While Bitcoin rose by 4.5%, Ether saw a 1.4% increase, and other cryptocurrencies like Dogecoin, Avalanche, and Polygon experienced declines.
The positive momentum has spilled over into crypto-related stocks, with Coinbase, MicroStrategy, and Marathon Digital extending gains for a third consecutive day, each posting over 300% gains for the year.
The 90-day correlation coefficient for Bitcoin and MSCI Inc.’s world shares index has plummeted from 0.60 at the beginning of the year to 0.18. A similar trend is observed in Bitcoin’s correlation with spot gold, dropping to almost nil from 0.36. This low correlation suggests that Bitcoin is moving independently of traditional assets.
Factors such as the bullish phase of the crypto cycle, a more favorable macroeconomic environment for risk assets, and positive news about potential Bitcoin and Ethereum ETFs contribute to the strong growth in digital assets. Greg Moritz, Co-founder and COO at AltTab Capital, believes that this is just the beginning and anticipates robust growth in digital assets as we enter 2024.
Regulation is emerging as another industry-specific driver. Crypto executives are optimistic that the worst of the US crackdown on the sector is behind them, with a potential for increased dialogue with regulators in the future.
Despite some technical indicators suggesting that Bitcoin’s rally may be stretched, with the 14-day relative strength index standing at 75 (above the 70 overbought level), speculative interest remains high. Anticipation of a Securities & Exchange Commission approval for US spot Bitcoin ETFs by January and bets on Federal Reserve interest-rate cuts next year continue to fuel investor optimism.
Online brokerage Robinhood Markets Inc. reported a substantial increase in its November notional crypto trading volumes, indicating a growing interest in cryptocurrency trading.
The sustainability of Bitcoin’s rally remains uncertain, with market observers suggesting that clarity will emerge once a decision is reached on the spot ETF.
