Bitcoin has been trading in connection with equities all year. In theory, this should mean that as stocks hit a potential bottom in the last week, the digital currency must have as well.
Unfortunately, it’s not that simple, according to Morgan Stanley.
Equity strategist Sheena Shah noted that, unlike in previous cycles, government stimulus and US central bank monetary policies caused bitcoin prices to go up, but then down.
This is similar to what has been observed in equities, and has contributed to the cryptocurrency’s greater correlation with US equities over the past six months.
Know more: How is the current macroeconomic crisis impacting the cryptocurrency market?
Another factor that contributed to this correlation was the increase in institutional participation in space. Institutions are more sensitive to the global liquidity environment and central bank policy than retail investors, so they are less likely to hold crypto assets for such long periods of time compared to them.
Many investors believe that the S&P 500 found a bottom at the level of around 3,600 in June. Bitcoin hit a low of $17,601.58 around the same time, down about 75% from its November high of nearly $69,000.
While this decline is steeper than normal for the currency, and although its correlation with equities is at an all-time high, it may be too early to call the current situation bottoming out.
According to the strategist, from these observations, “it is difficult to say if the bear market is over or if there is more to come. The correlation between bitcoin and the US stock market remains high and both are sensitive to central bank policies.”
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