Digital gold? No, Bitcoin is now closer to technology stocks

Bitcoin surged this week, stabilizing above the $66,000 mark on Friday. Year-to-date, Bitcoin has risen by 58%, while the Nasdaq 100 index has increased by 11% during the same period, showing a highly synchronized trend between the two.

According to media reports on Friday, the 90-day correlation coefficient between Bitcoin and the tech-heavy Nasdaq 100 index climbed to 0.46 this week, reaching a new high since the end of August last year. Since the beginning of 2022 when the Federal Reserve started raising interest rates, the correlation between Bitcoin and risk assets briefly soared to historical highs of over 0.8.

Joshua Lim, co-founder of trading firm Arbelos Markets, stated:

People are once again paying attention to cryptocurrencies as a growth asset or a representation of network value. Its ability as a technology and value transfer mechanism will be more closely related to other growth assets such as the Nasdaq and tech stocks.

For a long time, advocates of Bitcoin have promoted it as an asset with no correlation, not subject to any government restrictions, and unlikely to be influenced by external forces or factors. For years, it has been considered as digital gold, an inflation hedge tool, and a store of value, but the price volatility of Bitcoin has now challenged these claims. Earlier this year, the launch of Bitcoin futures ETF in the U.S. opened the door for more investors to invest in Bitcoin.

Toby Winterflood, Chief Product Officer at CCData, commented:

Since the beginning of 2024, you can see a high positive correlation between the S&P 500 index and Bitcoin, which is very unusual and completely breaks the theory of it being a store of value. I believe the main reason for its current high position is the development of Bitcoin ETF becoming the fastest-growing ETF product in history.

The catalysts that prompted traditional asset allocators to pay attention and buy into this asset class, including the U.S. ETFs, Bitcoin hitting an all-time high in March, and the Bitcoin "halving" in April, have now passed, and the market is refocusing on the macro environment.

Data released last Wednesday showed that the month-on-month core inflation rate in the U.S. for April fell for the first time in six months, moving in the direction that Fed officials hope to see. However, several Fed officials on Thursday indicated that interest rates should be kept at a higher level, waiting for more evidence to prove that inflation is slowing down, suggesting that they are not in a hurry to cut rates. Analysts believe that if the Fed cuts rates, it will be positive for risk assets, including cryptocurrencies.