The correlation between the crypto market and the tech-heavy Nasdaq equity index has turned positive, indicating a renewed focus on Wall Street on the risk appetite of digital asset investors.
According to data sourced from charting platform TradingView, the 90-day correlation coefficient between the total capitalization of the crypto market with the Nasdaq has increased from -0.12 to 0.74 in four weeks, reaching its highest level since early November.
In other words, the crypto market is again moving in tandem with technology stocks. On days when technology stocks trade higher, cryptocurrencies including bitcoin (BTC) and ether (ETH) are likely to do the same. Conversely, a decline in technology stocks could drag the crypto market down.
Speculation that the Federal Reserve (Fed) will resort to a rate cut later this year is probably on the back of a renewed correlation between liquidity-accustomed risk assets. The long-running positive correlation was shattered in November by the spectacular collapse of Sam Bankman Fried’s FTX exchange, with crypto investors dumping their tokens despite a risk reset on Wall Street.
Correlation is determined by comparing the returns or general movements of two assets or products over a specific period. A correlation close to 1 indicates that the two assets are moving in the same direction in lockstep. Meanwhile, a negative correlation means that the two assets move in opposite directions.
The renewed positive correlation means an increased sensitivity of cryptocurrencies to macroeconomic data releases such as the US Consumer Price Index (CPI), which injects volatility into stock markets. According to Marketwatch, CPI days were the most volatile for US stocks last year.
Tuesday’s US CPI report from the Bureau of Labor Statistics expects annual inflation to ease to 6.2% in January from 6.5% in December, according to Reuters estimates obtained from FXStreet. The core CPI, which excludes volatile food and energy components, is forecast to fall to 5.5% from 5.7%.
The better-than-expected figure could dash hopes for a so-called Fed pivot, weeding technology stocks and cryptocurrencies in favor of easing.
“Tuesday’s CPI release is going to be a big number,” Gregoire Magdini of cryptocurrency service provider Amberdata wrote in a weekly newsletter. Should the CPI come in higher than expected, given the big NFP surprise seen recently, it Could prove to be quite bearish for riskier assets.” sunday.
According to Andreas Steno Larsen, founder and CEO of Steno Research, the CPI data is likely to be softer than expected. This will boost expectations of a Fed rate cut.
“Based on our model and indicators — leading as well as trailing — we anticipate gains for headline and core to be in the neighborhood of 6.1% and 5.3%, respectively,” Larson said in a note sent to clients last week. “
Larson predicted a positive contribution, saying, “Wages have edged lower in all meaningful forward-looking gauges, while the housing CPI is splashing out at extremes relative to reality, meaning we see the main downside risk/reward relative to the headline.” Are.” Fatigue in the energy component, commodity prices, including used cars, and good prices.
Total crypto market capitalization recently hit a six-month high of $1.06 trillion and stood at $948 billion at press time, representing a 25% year-over-year gain. The Nasdaq is up 12% this year.