The Bitcoin (CRYPTO: BTC) price is moving higher over the past 24 hours, up 4.6% to US$31,670 (AU$44,051).
Why have cryptos come under pressure?
The vast majority of cryptos have come under selling pressure this year amid the spectre of rising interest rates. Not to mention the implosion of a top-ranked stablecoin TerraUSD (CRYPTO: UST) and its supporting token Terra (CRYPTO: LUNA) earlier this month.
With the cost of holding money going up, many investors have been lightening their holdings of risk assets, like tech shares priced with distant future earnings in mind.
This has seen the tech-heavy US Nasdaq fall 23.4% so far in 2022. Here in Australia, the S&P/ASX All Technology Index (ASX: XTX) has lost 30.3% year to date.
When investors turn risk averse following hawkish signals from the US Fed and other central banks, the Bitcoin price has fallen along with most risk assets. And when risk appetite increases amid more dovish signals, the Bitcoin price has trended higher in line with moves seen on the Nasdaq.
While crypto enthusiasts had been hoping that the digital assets wouldn’t move in lockstep with share markets, those hopes haven’t materialised.
Until last week…
Bitcoin price decouples from tech shares, but not as hoped
Last week, the Nasdaq finished up 6.7% as the Fed indicated it may not need to hike rates as aggressively as many investors had feared. (US markets were closed yesterday, overnight Aussie time, for the Memorial Day holiday.)
But the Bitcoin price didn’t join in the rally. In fact, it fell 5.5% over that same period. That marked eight weeks in a row the top crypto lost value.
So, what’s going on?
Chief market strategist at Miller Tabak + Co Matt Maley said the hit to the crypto market this month “took a lot of confidence out of the asset class”.
According to Maley (as quoted by Bloomberg):
Therefore, as investors become a little more confident about the markets in general, they’re looking at other areas in which to buy on weakness. They don’t want to get burned again in the cryptos.
Confidence is such an important part of new assets like cryptocurrencies. Until investors regain more confidence in the cryptos, they will no longer be a good a risk-on/risk-off indicator.
Senior market analyst at City Index Fiona Cincotta points out that the Bitcoin price may now only track risk assets on the way down, not up.
This is far from the decoupling that the Bitcoin bulls were looking for.
I doubt this will be the end of the Bitcoin-Nasdaq positive correlation. However, the concern is Bitcoin may only trace the Nasdaq when it falls.