- The benchmark cryptocurrency has outperformed U.S. equities in a welcome change as geopolitical uncertainty continues to roil markets.
- Correlation between the tech-heavy Nasdaq 100 and Bitcoin was as high as 0.46 in January but has been falling recently to as low as 0.23 over a three-month period.
Despite Bitcoin’s infamous volatility, the benchmark cryptocurrency has outperformed U.S. equities in a welcome change as geopolitical uncertainty continues to roil markets.
Bitcoin rallied on Tuesday when U.S. traders came back from the long weekend, outperforming the Nasdaq 100, which extended losses from last week after trading resumed from the Presidents Day holiday.
Correlation between the tech-heavy Nasdaq 100 and Bitcoin was as high as 0.46 in January but has been falling recently to as low as 0.23 over a three-month period.
Bitcoin recovered over 3% to above US$38,300 even as the Nasdaq 100 slipped 1.2%, demonstrating again how unpredictable the cryptocurrency’s correlation with other asset classes continues to be.
Nevertheless, weekend data for cryptocurrencies always needs to be taken with a pinch of salt because volumes tend to fall off and much of the trading is left to bots (automated trading programs that act on predetermined factors).
Weekend price swings tend to be exacerbated because of lower volumes and corrected on the weekdays when human traders are back at their desks.
The bulk of cryptocurrency trading is still very much manual, executed by human traders as opposed to algorithmic programs, unlike in the traditional equity markets.
Another possible reason for the rebound could also be that Bitcoin was oversold during the weekend and some traders are taking the opportunity to buy the dip, especially given the cryptocurrency’s potential role as a hedge against inflation in increasingly uncertain times.
Although flows into gold and gold investment products has been on the rise on the prospect of a Russian invasion of Ukraine, there continues to be a significant investor base that has taken increased exposure for Bitcoin, as a digital gold alternative.