Crypto’s correlation with US stocks nears record in Fed fallout

Digital assets and US stocks are moving more in tandem than at almost any time in the past, based on a correlation study, signaling that the macroeconomic variables driving equities are also shaping the crypto market.

A 40-day correlation coefficient for a gauge of the largest 100 digital assets and the S&P 500 Index is at about 0.67, a level exceeded only in the second quarter of 2022 when it topped 0.72, data compiled by Bloomberg show. A reading of 1 indicates assets are moving in lockstep, while minus 1 signals an inverse tie.

US stocks hit all-time peaks and Bitcoin jumped past $64 000 last week after the Federal Reserve kicked off an anticipated cycle of monetary easing with an aggressive 50 basis-point reduction in interest rates. Incoming US economic data are pivotal now for traders of all stripes for clues about the possible extent and pace of further cuts in benchmark borrowing costs.

“Macro factors are driving crypto prices currently, and this should continue throughout the Fed’s easing cycle, unless we see a crypto-specific black swan event,” said Caroline Mauron, co-founder of Orbit Markets, a provider of liquidity for trading in digital-asset derivatives.

Fed comments, PCE

Front and center this week will be commentary from Fed officials as well as the release of the central bank’s preferred measure of inflation, the personal consumption expenditures price index.

“We view the speakers as being more important than the PCE inflation data as it’s really the FOMC reaction function that is key at the moment that the market is trying to ascertain,” said Sean McNulty, director of trading at liquidity provider Arbelos Markets.

Bitcoin, the largest cryptocurrency, rose less than 1% to $63 480 as of 7:38 a.m. Monday in New York amid modest gains across most major digital tokens. The advance came alongside a climb in US equity futures.

A pledge from Vice President Kamala Harris to help grow investment in artificial intelligence and crypto if she wins the US election supported sentiment. So did expectations for more stimulus in China after a reduction in borrowing costs.

© 2024 Bloomberg