Data shows that bitcoin's correlation with Nasdaq has plummeted recently, suggesting that the cryptocurrency is moving more independently now.
bitcoin's 60-day correlation with Nasdaq is now underwater
According to data from the analytics firm the dock, btc has recently become less correlated with traditional assets. “Correlation” refers to a metric that tracks how linked the prices of any two assets are.
When the value of this metric is positive, there is some positive correlation between the given assets. What this means is that the price of one asset reacts to the movements of the other by moving in the same direction. The closer this value is to 1, the stronger the correlation.
On the other hand, negative values imply that, although there is some correlation between prices, it is negative. This suggests that the assets have been reacting to each other by moving in opposite directions. In this case, the extreme where this correlation becomes strongest is -1.
Naturally, when the value of the indicator is around zero, it means that there is no correlation between both prices, since their movements are independent of each other.
Now, here is a chart showing the trend in the 60-day correlation between bitcoin and Nasdaq over the past year:
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/12/BTC-Nasdaq-correlation-falls-to-negative.png" alt="bitcoin correlation with Nasdaq” width=”1120″ height=”601″/>
The value of the metric seems to have sharply gone down over the last few weeks | Source: @KaikoData on X
As can be seen from the graph, the correlation between assets is shown here as a percentage (100% naturally corresponds to the extreme point of 1).
It would seem that bitcoin's correlation with Nasdaq had been at notable, but not too high, levels for the rest of the year, but recently, the indicator's value has seen a drop.
The metric has now entered negative territory, meaning the two assets have been moving against each other for the last 60 days. However, the correlation is still pretty close to 0, so there's actually only a very slight relationship between the two now.
bitcoin, which for a time was tied to the performance of the stock market, now finally appears to travel independently of the prices of these traditional assets.
Correlation is a useful indicator to observe if an investor's goal is to diversify their portfolio. If the investor adds two highly correlated assets to his portfolio, he would not obtain any benefit from diversification, since his risk would remain approximately the same.
Given that bitcoin is now moving independently of the Nasdaq, it could provide an ideal diversification option for traders of the traditional asset.
btc Price
bitcoin had plummeted towards the $40,500 mark just a few days ago, but the cryptocurrency seems to have recovered somewhat as it is now trading around the $43,700 level.
<img loading="lazy" decoding="async" class="alignnone size-medium aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/12/BTC-Nasdaq-correlation-falls-to-negative" alt="bitcoin price chart” width=”1534″ height=”870″/>
Looks like btc has made some recovery over the last few days | Source: BTCUSD on TradingView
Featured image by André François McKenzie on Unsplash.com, TradingView.com charts, Kaiko.com
