BTC correlations with the Dollar Index, Gold, S&P 500, and Nasdaq may indicate that a peak in these may be near
Cross-asset correlations have played out perfectly this year. I have covered this topic more than once on occasion on previous occasions — two prominent ones are the dollar index’s inverse relation with Bitcoin and international stocks. Now, as we have entered the final quarter of the year, it’s time to review where they stand. As the chart above suggests, we will analyze how Bitcoin's performance compares to the US dollar benchmark index DXY, along with Nasdaq, S&P 500, and Gold.
Let’s look at DXY’s correlation with Bitcoin first (top chart). According to Arcane research, BTC’s 30-day correlation to DXY has declined to -0.64 — this has been lower only on 9 occasions since 2017. Higher yields have kept the dollar index in a relentless bull run this year, which has put pressure on global equities and digital assets. And for that matter, all riskier assets, which benefit from lower interest rate environments.
Similarly, the 30-day correlation between BTC and U.S. equities has stabilized at around 0.7 in the last five weeks (bottom chart). This level was last seen in April/May when it stayed there at these highs for 6 weeks. In the following weeks & months, the correlation softened due to crypto contagion before jumping back up to current levels. These correlations vouch for the fact that Bitcoin has similar risk profiles as U.S stocks and the opposite when it comes to USD.
And finally, the most important correlation to discuss here is Bitcoin with the traditional hedge Gold. This sits at multi-year highs of 0.52, suggesting that the flight toward the dollar is widening its reach. Unlike the risk-averse environments that we have seen previously, Gold is not seeing inflows and losing ground against the US dollar like all the other riskier assets. The singular theme emerging from currency market conditions is that cash is king, and you know what that means — massive inflows into USD.
Originally Published on Medium
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