Hear Alex Thorn share his take on “Bitcoin and Inflation: It’s Complicated” at Consensus 2023.
Alex Thorn
Head of Firmwide Research
Galaxy
Hear Alex Thorn share his take on “Bitcoin and Inflation: It’s Complicated” at Consensus 2023.
Omkar Godbole was a senior reporter on CoinDesk’s Markets team.
Alex Thorn
Head of Firmwide Research
Galaxy
Hear Alex Thorn share his take on “Bitcoin and Inflation: It’s Complicated” at Consensus 2023.
Alex Thorn
Head of Firmwide Research
Galaxy
Hear Alex Thorn share his take on “Bitcoin and Inflation: It’s Complicated” at Consensus 2023.
Bitcoin’s price rose 23% in March as multiple U.S. banks went bust, bolstering recession fears.
Several analysts have called the move higher a safe haven rally – with the price gain being attributed to investors seeking shelter in the top cryptocurrency amid bank failures.
Bitcoin, however, rose in tandem with the Nasdaq to S&P 500 (NDX/SPX) ratio, a sign the rally was partly, if not mainly, driven by improved risk appetite stemming from hopes for an early Federal Reserve (Fed) pivot in favor of liquidity-boosting rate cuts.
The NDX/SPX ratio measures the relative difference in valuation between technology stocks represented in the Nasdaq 100 and a basket of broader industry stocks from the S&P 500.
The ratio rose by 5.65% in March, capping its best monthly performance since February 2009, as banking sector instability saw traders aggressively reinstate bets that the Fed would cut rates later this year. Nasdaq surged nearly 10%, outperforming the S&P 500’s 3.5% gain by a big margin.
The 90-day correlation coefficient between bitcoin and the NDX/SPX ratio rose from 0.81 to 0.90, signaling the strongest positive relationship between the two assets since June 2022. At press time, the correlation coefficient stood at 0.89. The positive correlation means on days when the ratio rises, bitcoin is more likely to do the same and vice versa.
“BTC is still trading like a risk asset,” Noelle Acheson, the author of the popular Crypto is Macro Now newsletter, said, referring to the positive correlation between bitcoin and the NDX/SPX ratio. “The rising NDX/SPX ratio means tech is doing better, which says risk sentiment is strong.”
Technology stocks tend to be more sensitive to interest rate expectations than the broader market. Thus a rising ratio is often equated with dovish Fed expectations and improved investor risk appetite that often percolates into other assets like cryptocurrencies, as observed in 2020 and early 2021. A falling ratio represents risk-off sentiment.
“Much like crypto, growth-style companies which are expected to provide cash flows, or some form of fundamental value, further out into the future find their performance more heavily influenced by shifts in interest rates. The Nasdaq 100 index, for example, is comprised of mostly growth-style sectors, such as technology, which are more sensitive to rising or falling rate expectations,” Gabriel Selby, Lead Research Analyst at CF Benchmarks, told CoinDesk in an email.
Selby added that as the NDX/SPX ratio is closely tracking the crypto market, it suggests interest rate expectations are in the driver’s seat and the pricing divergence between equities and crypto markets may not be as wide as initially thought.
The correlation between bitcoin and the NDX/SPX ratio was consistently positive during the 2022 bear market and between May 2020 and March 2021, when the cryptocurrency rallied nearly tenfold to $60,000.
If that’s not enough, both have been rallying in lockstep since early January. While bitcoin has risen nearly 70% this year, the ratio is up 11.26%.
Bitcoin’s pause at around $28,000 since March 22 is consistent with the consolidation in the NDX/SPX ratio.
While bitcoin’s near-term prospects appear tied to gyrations in the NDX/SPX ratio, it could benefit from fears of fiat currency devaluations over time, according to Acheson.
“BTC is still (and always will be) a risk asset for traditional investors. It is also likely to be regarded as a safe haven,” Acheson said. “We are likely to see continued accumulation from longer-term investors interested in its currency debasement hedge properties, while short-term moves are dictated by shifting theories about what monetary liquidity will do.”
Edited by Oliver Knight.
DISCLOSURE
Please note that our
privacy policy,
terms of use,
cookies,
and
do not sell my personal information
has been updated
.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a
strict set of editorial policies.
CoinDesk is an independent operating subsidiary of
Digital Currency Group,
which invests in
cryptocurrencies
and blockchain
startups.
As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of
stock appreciation rights,
which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG
.
Omkar Godbole was a senior reporter on CoinDesk’s Markets team.
Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.
Omkar Godbole was a senior reporter on CoinDesk’s Markets team.
Many digital asset investors benchmark themselves to bitcoin, at least psychologically. Whether or not bitcoin is the right benchmark, it has certainly been a tough one to beat over the last few years — so tough that some market participants seem ready to throw in the towel on alts. But has bitcoin always been this
Jan 15, 2020 at 20:00 UTCUpdated Jan 15, 2020 at 20:26 UTCBuddy Hields image courtesy ConsenSysNBA Team Auctioning Basketball Star’s Jersey on Ethereum BlockchainThe Sacramento Kings will auction off starting guard Buddy Hield’s game jersey from Wednesday’s game against the Dallas Mavericks using a blockchain-powered marketplace.Working with ethereum project incubator ConsenSys, the Kings said Wednesday…
Amazon Web Services (AWS) is searching for a specialist to foster digital asset underwriting, transaction processing, and custody in the cloud, according to a recent job posting.The infrastructure giant wants to hire a Financial Services Specialist to work with global financial institutions and innovative fintechs, and “transform the way they transact digital assets (ex. cryptocurrencies,…
Jan 28, 2020 at 10:45 UTCUpdated Jan 28, 2020 at 10:53 UTCNorth Sea oil rig. Credit: ShutterstockOne of World’s Richest Firms Joins Blockchain Trade Platform Vakt After $5M InvestmentThe investment arm of one of the biggest firms in the world by revenue – oil giant Saudi Aramco – has made a $5 million investment in…
U.S. Rep. Katie Porter, a prominent Democrat progressive from California, has a crypto target on her back as one of the industry's leading campaign-finance organizations opposes her with ads.Porter's campaign said that billionaires and corporate interests are trying to rig the March primary election with misinformation. The U.S. crypto industry's most prominent campaign-finance organization, Fairshake
Sep 23, 2020 at 15:00 UTCUpdated Sep 23, 2020 at 15:12 UTC(Sungsu Han/Shutterstock, modified by CoinDesk)Parity Upgrades Polkadot’s Underlying Tech to Make Custom Blockchain Building EasierParity Technologies has released the second version of its blockchain building kit, Substrate 2.0, according to a blog post shared Wednesday with CoinDesk. The new release gives developers additional tools…
news ConsenSys, the ethereum production studio, is letting go of 13 percent of its staff, according to a company announcement published Thursday and confirmed to CoinDesk by company officials. The move comes on the heels of an announced “re-focusing of priorities” at the Joseph Lubin–funded venture studio. As the company said Thursday: “Excited as we…
news Crypto startups Zilliqa and MaiCoin have teamed up to create a centralized security token exchange in Singapore that will apply blockchain technology to the trading of traditional asset classes. Launched today, Hg Exchange aims to act as a “one-stop solution” for token issuers, buyers, sellers and market makers, providing participants access to privately held…
In addition to price concerns, questions about network security in a post-halving world remain unanswered.There are potential security risks due to the possibility of smaller miners withdrawing from the market as rewards are halved, leading to reduced hash rates and overall security.It is estimated that 51% of the hashing power within the protocol architecture may