Charles Edwards, the founder of the Capriole Fund, revealed that Bitcoin will decouple from stocks and will likely outperform them. If the correlation breaks during such troubled macroeconomic conditions, BTC can gain back its reputation as an inflation hedge. BTC prices can show significant bullish movement as a result.
While arcane research recently reported that Bitcoin is still firmly following the stock market, other experts describe when BTC can break correlation.
Correlation Between Bitcoin and Stock Market
According to Coinbase Institute Research, the crypto market and traditional financial market became increasingly correlated in 2020. Since the start of the pandemic, the crypto market saw exponential growth. During this time, it also became increasingly intertwined with the stock market.
According to Coinbase Research, the crypto assets share a very similar risk profile to oil and technology stocks. Bitcoin and Ethereum went from not being correlated with the stock market in 2019 to being strongly correlated in 2022, having a beta of 2. Beta is a measure of how strongly an asset is coupled with the stock market.
A beta of 2 means that when the stock market rises or falls, Bitcoin and Ethereum rise or fall by twice as much. Arcane research pointed out that while the tech-oriented NASDAQ fell by 22%, BTC dropped by 51% during the same period.
Coinbase Research attributed two-thirds of the crypto prices fall during the bear market to larger macro-economic conditions. Only one-third of the fall was due to issues in the crypto industry.
When Will Bitcoin Decouple From Technology Stocks
The State of Crypto report published by 21Shares revealed that the correlation between Bitcoin and stocks is temporary. A recent report published by Bloomberg highlighted that a 40-day correlation coefficient between BTC and NASDAQ is at its lowest point in the year.
Citing a Bridgewater Associates report, Edwards revealed that Gold was the best asset during stagflation. Many experts consider Bitcoin to be an inflation hedge like gold. With the prevalent economic conditions, Edwards believes that Bitcoin can replace Gold and outperform stocks.
In an interview with CNBC, Cumberland’s Chris Zuehlke revealed that while Bitcoin does track with NASDAQ, it decouples with it when there is macro-economic predictability.
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