Bitcoin (BTC) has demonstrated remarkable resilience as it surged to a more than 19-month high, despite a downturn in global markets. On Monday, the cryptocurrency climbed by 5.8% and reached $42,000, maintaining its position just below that level during morning Asian trading on Tuesday.
Sean Farrell, the head of digital-asset strategy at Fundstrat Global Advisors LLC, explained that this divergence between Bitcoin and traditional macro assets highlights the current low correlation between cryptocurrencies and global shares and bonds.
The Impact of Specific Factors on Bitcoin’s Performance
Throughout 2023, Bitcoin’s correlations with stocks and gold have diminished as specific factors within the crypto market propelled a remarkable 152% surge in the value of the largest digital asset.
One of the driving factors behind these gains is the anticipation that the United States will approve its first spot Bitcoin exchange-traded funds (ETFs), potentially expanding the demand for the token. This anticipation has led to a decline in the correlation coefficient between Bitcoin and MSCI Inc.’s global shares index, from 0.60 to 0.18. A similar analysis with spot gold reveals a correlation figure close to zero from 0.36.
The Influence of Regulation on Crypto Market Sentiment
Regulation also plays a significant role in shaping the crypto market. Executives in the industry are increasingly optimistic that the worst of the US crackdown on the sector is behind them. Recent events, such as the imprisonment of Sam Bankman-Fried for fraud at FTX and the fines imposed on top crypto exchange Binance and its founder Changpeng Zhao for US anti-money-laundering and sanctions violations, have instilled the belief that US authorities and regulators have already expressed their stance. This has raised hopes for more constructive dialogues between regulators and industry participants.
Despite the positive sentiment surrounding Bitcoin’s rally, technical indicators, including the 14-day relative strength index (RSI), suggest that the rally may have become overextended, with the index at 75 above the 70 overbought level. However, speculative interest persists due to predictions of the Securities & Exchange Commission granting approval for US spot Bitcoin ETFs by January. Furthermore, investors are encouraged by bets on future interest-rate cuts by the Federal Reserve.
Online brokerage Robinhood Markets reported a significant increase in its notional crypto trading volumes in November, approximately 75% higher than October levels. Similarly, shares of public crypto companies listed in the US have surged alongside the rising BTC price. Coinbase, a popular crypto exchange, saw a 7.3% surge before the market opened on Monday. Despite reporting a decline in third-quarter trading volumes, the stock experienced a remarkable increase of nearly 62% in November. Microstrategy, a prominent bitcoin investor, also witnessed an 8.2% gain following its acquisition of bitcoins worth $593 million the previous month.
