Correlation Between Bitcoin and Nasdaq 100 Reaches Highest Level Since August 2023

The correlation between Bitcoin and the Nasdaq index means that the price movements of the first cryptocurrency and American tech company stocks are aligning.

Investors' perception of the first cryptocurrency is changing. During the last tightening cycle of the U.S. Federal Reserve's monetary policy, Bitcoin was considered a speculative asset, and its value declined due to expectations that higher interest rates would reduce risk appetite. Now, Bitcoin is seen as an asset similar to tech company stocks, reports Bloomberg.

According to experts interviewed by the agency, the close correlation between Bitcoin's price and the Nasdaq 100 index, which reflects the state of American tech company stocks, indicates this shift.

This week, the 90-day correlation coefficient between Bitcoin and the Nasdaq 100 tech index reached 0.46, the highest level since late August 2023. A coefficient of 1 means that the assets move synchronously, while minus 1 means they move in opposite directions.

BTC and Nasdaq Correlation Index. Source: Bloomberg

After the U.S. Federal Reserve began raising the key interest rate in 2022, the correlation spiked to over 0.8, the highest level on record.

Investors are again starting to view cryptocurrency as an asset capable of generating profit or an asset with network value, stated Joshua Lim, co-founder of the trading company Arbelos Markets.

"There is growing understanding that cryptocurrency represents not just a means of payment but an advanced technology and an efficient value transfer mechanism," said Lim. "As a result, cryptocurrency is becoming increasingly interconnected with other growth assets, such as tech company stocks traded on the Nasdaq and other similar assets."

Bitcoin was initially designed as a decentralized cryptocurrency, free from government and regulatory control, but things did not go as planned. Additionally, the cryptocurrency has not become an alternative store of value like gold—its volatility calls into question its ability to perform this function.

"The connection between Bitcoin and traditional markets has reached a high level," said CCData's product director, Toby Winterflood. "This challenges the long-held theory of Bitcoin as an asset capable of protecting investors from market shocks."

Experts associate the rise in Bitcoin's value since the beginning of the year with the growing popularity of exchange-traded funds (ETFs) for the first cryptocurrency, which have become some of the fastest-growing investment instruments in history.

So-called spot ETFs involve the actual purchase of cryptocurrency to back the fund's shares. The launch of such ETFs in the U.S. triggered capital inflow into the market and became one of the catalysts for Bitcoin's price increase in 2024. According to Bloomberg Intelligence ETF analyst Eric Balchunas, more than 500 different organizations have purchased shares in spot Bitcoin ETFs. The total assets under management of these ETFs amounted to $54 billion as of May 17.

However, according to Lim and Winterflood, now that this is behind, investors' attention is shifting to the overall macroeconomic picture. This means that in the future, cryptocurrency price movements will depend more on general economic conditions and monetary policy.

Analysts believe that risky assets, such as cryptocurrencies, will benefit from a potential Federal Reserve interest rate cut. However, it remains to be seen whether Bitcoin will continue to be positioned as a high-risk asset or if it will begin to be perceived as an alternative investment instrument in traditional markets.