Sentiment around cryptocurrencies and equities has diverged dramatically over the past month, with the former witnessing a sharp drop while the latter flying to new highs.
Indeed, the 30-day correlation of Bitcoin BTC/USD to the Nasdaq Composite and the S&P 500 has dropped to an 8-month low.
The decoupling has more to do with cryptocurrency-specific triggers, like the Bitcoin sell-offs by the German government and the defunct cryptocurrency exchange Mt. Gox.
While discussions about decoupling and correlation between the two risk-on market sectors continue, Benzinga spoke with experts about the best long-term scenario.
Bitcoin As A Portfolio Diversifier
Gracy Chen, CEO of cryptocurrency exchange Bitget, stated that a negative correlation could be appealing to professional traders who hold both assets in their portfolios.
“For investors focused on growth and somewhat on stability, Bitcoin is viewed as digital gold, historically not losing more than 20 percent in value per month,” Chen remarked, implying the coin’s usefulness as a safe-haven asset.
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This views were echoed by Ben Kurland, CEO of cryptocurrency research and charting platform DYOR. He emphasized, “In the long run, it’s best to have Bitcoin move independently of traditional markets. It reinforces Bitcoin’s position as a unique asset class, offering diversification benefits.”
The Other Argument
Kilian Peter Krings, CEO of Solana SOL/USD-based liquidity and trading layer stabble, argued that a growing divergence won’t exactly be an ideal situation for cryptocurrency investors.
Krings stated that there is more to the sector than just utilizing Bitcoin as a store of value, and that an increasing number of startups would like to align with typical market cycles rather than profiting exclusively when equities fall.
“When you look at the long-term stock charts, there are more bullish cycles than bearish ones. I assume most people prefer the bullish cycles,” Krings added.
On similar lines, Kadan Stadelmann, CEO of blockchain services provider Komodo, while accepting Bitcoin’s utility as a hedge against systemic risks, said that both the cryptocurrency market and stocks should move along the same wavelength in the long run to reflect global economic growth.
While both asset classes appear to be moving in separate directions, the incoming inflation data from June, viewed as a crucial market mover, has the potential to align them.
Price Action: At the time of writing, Bitcoin was trading at $57,250.21, falling 0.94% in the last 24 hours, according to data from Benzinga Pro. Stocks retreated from record highs on Thursday. The S&P 500 closed 0.88% lower at 5,584.54, while the tech-heavy Nasdaq Composite slipped 1.95% to end at 18,283.41.
Year-to-date, the world’s largest cryptocurrency has outperformed equities, gaining 35%. The S&P 500 rose 17.7%, while Nasdaq Composite has jumped 23%, since the start of the year.
What’s Next: The influence of Bitcoin as an institutional asset class is expected to be thoroughly explored at Benzinga’s upcoming Future of Digital Assets event on Nov. 19.
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