Bitcoin (BTC) gained 6.2% on Aug. 23, pushing its price to levels unseen in three weeks, and has since maintained the $63,000 support level. Despite this positive price movement, BTC derivatives traders appear to be relatively unmoved, indicating a lingering skepticism regarding the sustainability of this trend.
Bitcoin to stock market correlation in check
Some market participants attributed the ongoing macroeconomic factors as the primary drivers for the crypto market’s behavior, with investors eagerly awaiting the United States Federal Reserve’s decision on interest rates in September.
Given that the Russell 2000 small-cap stock index is currently trading 2% below its highest-ever closing in July 2024, it’s challenging to argue that traders have become risk-averse. At the same time, gold, a traditional safe-haven asset that generally benefits during periods of uncertainty, is merely 0.6% below its all-time high.
Moreover, the yield on the US Treasury 2-year note is nearing its lowest level since May 2023, which typically means that buyers are becoming more aggressive, accepting lower returns in the process. In essence, the market is simultaneously seeking protection in assets considered safe while also holding on to expectations of positive impacts from second-quarter corporate earnings.
This scenario tends to be unfavorable for Bitcoin, primarily because most investors still perceive it as a risk-on asset. However, it would be an oversimplification to label Bitcoin’s correlation with equities as consistently high, given that this relationship has varied over time and rarely exceeds a correlation duration of more than five months.
Historical 40-day correlation Bitcoin vs. S&P 500 futures. Source: TradingView
Escalating geopolitical tensions in the Middle East further contributed to investors’ reduced appetite for risk exposure. Following missile exchanges between Israel and Hezbollah across the Lebanon border, and a significant socio-political dispute in Libya that led to a partial halt in the country’s oil production, as reported by CNBC, investor uncertainty has increased.
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