Digital assets and US stocks are increasingly moving in tandem, reflecting the influence of similar macroeconomic factors.
A recent correlation study reveals that the 40-day correlation coefficient between the largest 100 cryptocurrencies and the S&P 500 Index is approximately 0.67.
This figure approaches the record high of 0.72 set in the second quarter of 2022, indicating a significant alignment between these two asset classes.
A correlation coefficient is a number that measures the strength and direction of the relationship between two variables.
Historically, cryptocurrencies were viewed as non-correlated or even counter-cyclical to traditional markets.
However, during times of economic uncertainty, this perception has shifted.
The growing involvement of institutional investors and the shared economic drivers—such as monetary policy, inflation, and global risk sentiment—are now increasingly influencing both equities and the crypto market.
Fed policy fuels market synchronization
Recent actions by the Federal Reserve have further shaped this correlation.
US stocks reached all-time highs, and Bitcoin surged past $64,000 following a 50-basis-point rate cut, signaling the start of a monetary easing cycle.
Caroline Mauron, co-founder of Orbit Markets, emphasized this trend, stating, “Macro factors are driving crypto prices currently, and this should continue throughout the Fed’s easing cycle unless we see a crypto-specific black swan event.”
Market participants are now closely monitoring commentary from Fed officials and the upcoming release of the Personal Consumption Expenditures (PCE) price index, which is the central bank’s preferred inflation measure.
Sean McNulty, director of trading at Arbelos Markets, noted, “We view the speakers as being more important than the PCE inflation data, as it’s the FOMC reaction function that is key at the moment.”
Source: Bloomberg
2022: the year of unprecedented correlation
The year 2022 marked a significant shift in the relationship between cryptocurrencies and US equities.
As the Federal Reserve began tightening monetary policy to combat rising inflation, the correlation between these asset classes reached unprecedented levels.
The correlation coefficient between Bitcoin and the S&P 500 climbed to around 0.72 in the second quarter of FY23, showcasing how both markets responded similarly to interest rate hikes, inflation fears, and broader risk-off sentiment.
During this period, Bitcoin and other major cryptocurrencies mirrored the performance of risk assets like tech stocks, particularly as both crypto and stock markets entered bear territory.
In early 2023, however, the correlation moderated to approximately 0.5, as some crypto-specific events, such as developments in decentralized finance (DeFi) and regulatory news, temporarily decoupled the markets.
As of Monday morning, Bitcoin, the largest cryptocurrency, saw a modest rise of less than 1%, reaching $63,480, alongside similar gains across other major digital tokens.
This uptick coincided with increases in US equity futures, driven by expectations of further monetary stimulus in China and heightened interest in artificial intelligence and cryptocurrency investments, following a recent pledge from US Vice President Kamala Harris.
Overall, the evolving correlation between digital assets and traditional equities underscores the need for investors to remain vigilant about macroeconomic factors shaping both markets.
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