Bitcoin's correlation with US equities falls to multi-month low

Bitcoin's correlation with the Nasdaq Composite and the S&P 500 has fallen to a multi-month low, according to data from The Block.

The 30-day Pearson correlation of bitcoin to the Nasdaq and bitcoin to the S&P 500 has fallen to -0.84 and -0.82 respectively, representing lows not seen since November 2023, according to The Block's Data Dashboard. The correlation data from The Block aligns with a recent Bloomberg report, which stated that the 90-day correlation coefficient between bitcoin and the Nasdaq 100 index dropped to 0.21 on Tuesday, a multi-month low.

The Block's charts show that the correlation between bitcoin and major U.S. equity indices has dropped off sharply since the beginning of June, when the digital asset's price reached $71,000 and then made a U-turn. Bitcoin is currently caught in a tight 24-hour range between $58,000 and $59,000, whereas equity indices have sustained their multi-month rally, showing exuberance ahead of Thursday's U.S. Consumer Price Index (CPI) inflation reading. Economists forecast that the CPI is expected to have dropped marginally in June when looking at the year-over-year headline reading.

Stock futures ticked higher on Wednesday, testing new highs. S&P 500 futures climbed 0.074% in pre-market trading, and Nasdaq 100 futures increased by 0.29%.

YouHodler Chief of Markets Ruslan Lienkha, stated that bitcoin's decoupling from equities is caused by recent sell-pressure events. The cryptocurrency is grappling with supply-side issues stemming from seized bitcoins held by the German and U.S. governments, along with the distribution of funds from the defunct bitcoin exchange Mt. Gox.

"Fundamentally, the price decrease can be attributed to substantial selling pressure from the German government and the distribution of Mt. Gox assets among creditors. These factors are temporary, suggesting that the price will likely recover soon. Although there is a possibility that the price may briefly dip into the $50,000 to $52,000 range, a swift recovery is anticipated," Lienkha told The Block.

However, Lienkha noted that opportunities exist for traders wanting to exploit the divergence between bitcoin and U.S. equity markets. "The current divergence between the S&P 500 and bitcoin presents a potential spread arbitrage opportunity, given the correlation between the equity market and bitcoin over extended timeframes," he told The Block.