Wednesday’s price action between Bitcoin (BTC) and US stocks attracted investors’ attention by highlighting early signs of a decline correlation between the two.
In a typical diversified portfolio, assets are expected to show little correlation. Gold, for example, continues to hit its all-time highs, setting 12 new daily records this year, indicating a clear dislocation from US stocks.
Bitcoin is often labelled Leveraged Play on the Nasdaq 100, but recent trends suggest that relationships may be weakened.
Take BlackRock’s iShares Bitcoin Trust (IBIT). This is only traded during normal US market hours. On Wednesday, the Nasdaq 100 plummeted more than 3%, rising 0.46%, even if it fell by 4.5% at one point.
Strategy (MSTR), a Bitcoin Lever play included in the Invesco QQQ Trust (QQQ), highlights the growing divergence, with an increase of 0.30%, even if all seven of the epic tech stocks were closed in red.
The correlation between Bitcoin and the Nasdaq fluctuated throughout the day. For example, both assets fell in tandem while Fed Chairman Jerome Powell spoke. However, Bitcoin later rebounded over $84,000, but the Nasdaq continued to collide with new intraday lows before recovering at the end.
Powell’s comments have resulted in more hawkish than expected as they are labelled as “evolving risks,” citing inflation concerns caused by tariff uncertainty and rising taxes. Hopes for short-term inflation are also rising.
The market was particularly volatile by Powell’s response to the question. Are there any Fed deposits for the stock market? Powell’s reply: “I’m going to say no.”
“Fed Put” is a long-standing market theory, suggesting that the Fed will step in to stabilize the market during a sharp recession. Unresolved questions now: Was Powell bluffing or is the Fed really far from his role as a market backstop?
