With the ongoing “crypto winter”, digital investors are skeptical about the market and have gone back to focusing on the mood of the US stock market to ascertain if the worst might be over.
The stocks have mostly been up over the last few weeks and so is Bitcoin, which has added 15 percent over the past month. After a significant decline in June, the 90-day correlation coefficient between Bitcoin and the S&P 500 is now back at 0.65, one of the highest readings found in Bloomberg data going back to 2010. A coefficient of 1 indicates that the assets are moving in unison, whereas a coefficient of -1 indicates that they are moving in the opposite direction.
The stocks and crypto are moving in a similar fashion. The backdrop is a Federal Reserve that is hawkish and determined to rein in inflation, which has been been the cause of volatility for a variety of assets in 2022.
However, there is no way to ascertain whether the lows in the stock market and the crypto market have been hit because bottoms are only apparent after the fact, and it’s likely that both lows will be revisited later this year or possibly early next year.
According to Mike McGlone, an analyst at Bloomberg Intelligence, “if the equities have bottomed”, the cryptocurrencies might outperform themselves. “There are few more powerful forces in markets than when the stock market drops at high velocity as in the first half. Cryptos are part of that ebbing tide.”
The active addresses of Bitcoin are firmly within “a well-defined downtrend channel,” according to analysts at Glassnode, a crypto researcher. They further said that the network activity “suggests that there remains little influx of new demand as yet.”
At the same time, the transactional demand has traded sideways or lower in recent weeks, suggesting that “only the stable base of higher conviction traders and investors remain.” And on-chain transaction fees are in the bear-marker territory – seeing an uptick there could be a signal of recovery, once it happens.
“The 2022 bear market has been historically negative for the digital asset space,” the analysts wrote in a note. “However, after such a sustained period of risk-off sentiment, attention turns to whether it is a bear market relief rally or the start of a sustained bullish impulse.”
July was a great period for Bitcoin, Ether, and others. Bitcoin rose by 27 percent, the most since October 2021, and the No. 2 token added 70 percent in its monthly performance since January 2021. According to CryptoCompare, total volumes of the Tether stablecoin for Bitcoin and Ether rose, suggesting that investors have been looking at them as safer places within the crypto universe.
Even though the price of crypto has increased recently, it is still far below the highs it achieved at the end of last year. Bitcoin has been hovering around $23,000, down from nearly $69,000 in November. Even eye-catching developments such as Coinbase’s new partnership with BlackRock, haven’t been able to awaken the coin from its lethargy and propel it higher.
“Crypto has more volatility so therein is riskier, and it would make sense that investors need to rebuild confidence after the downdraft they’ve suffered through,” said Katie Stockton, founder and managing partner of Fairlead Strategies, a research firm focused on technical analysis.
She added that still crypto investors are taking cues from equities, but it goes both ways. “It seems reasonable because both are risk assets.”