Bitcoin continues to show its correlation with equities amid global macro risks

IInflation fears continue to rock the stock market, which is also spilling over into crypto markets. Bitcoin fell below $40,000, highlighting its recent correlation with stocks.

The US Federal Reserve is already looking to lighten its balance sheet by offloading assets it purchased to help support the economy when the pandemic hit. This includes assets such as bond-focused exchange-traded funds (ETFs), adding even more pain to the debt market.

During Tuesday’s trading session, bitcoin rallied back above the $40,000 level. Geopolitical tensions will also likely be a factor in stock markets, which could translate into pressure in crypto markets.

“Bitcoin and traditional markets continued to respond negatively to expectations that the US Fed would tighten monetary policy to fight inflation, and Tuesday’s CPI release appears to weigh heavily,” analyst Riyad Carey said. of research at Kaiko. “Overall, the continued war in Ukraine and increased shutdowns in China are weighing on markets.”

Inflation dissipates?

Bitcoin’s recent pullback from over $40,000 came on the notion that inflation dissipation could occur given the latest consumer price report from March. Bitcoin has often been seen as a hedge against inflation, but lately the major cryptocurrency has been moving in tandem with the stock markets.

Stock and crypto markets both stumbled in 2022, amid headwinds of inflation fears. They have since rallied before stumbling against recently, but the hope is that the dissipation of inflation could trigger another recovery in the second quarter.

“Consumer prices for March rose 1.2% month-over-month and 8.5% year-over-year, the Labor Department said Tuesday,” according to a CNBC report. “But traders were focused on the core reading, which excludes food and energy prices. Core CPI in March rose 0.3%, below economists’ consensus estimate. of Dow Jones by 0.5%. Core prices on an annual basis increased by 6.5%.

“The big news from the March report was that core price pressures finally appear to be easing,” wrote Andrew Hunter, senior US economist at Capital Economics, who also noted that March “will mark the peak” of the upside. of inflation.

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