Crypto And US Stocks Near-Record Correlation Levels After Fed Rate Cut—What To Watch For

According to a recent report from Bloomberg, crypto assets and US stocks are increasingly moving in tandem, reflecting a significant correlation that has not been seen in recent months. This correlation suggests that the macroeconomic factors influencing equity markets also shape the digital asset landscape.

Correlation Between Digital Assets And S&P 500

Per the report, the 40-day correlation coefficient for a gauge of the largest 100 digital assets and the S&P 500 Index currently stands at approximately 0.67. This level of correlation has only been surpassed once, during the second quarter of 2022 when it peaked at 0.72.

In this context, a coefficient of 1 indicates that the assets are moving in perfect synchrony, while a reading of -1 suggests an inverse relationship.

The recent alignment between crypto and traditional equities has been particularly pronounced since the Federal Reserve (Fed) initiated a monetary easing cycle by implementing a 50 basis-point reduction in interest rates last week. 

This decision coincided with US stocks reaching all-time highs and the largest cryptocurrency on the market, Bitcoin (BTC), surpassing the $64,000 mark on Friday for the first time in over a month. 

Caroline Mauron, co-founder of Orbit Markets, a firm specializing in liquidity for digital asset derivatives, noted that macroeconomic factors are currently driving crypto prices. She emphasized that this trend will likely persist throughout the Fed’s easing cycle, barring any unexpected events specific to the cryptocurrency market.

Kamala Harris’s Support For Crypto Fuels Investor Hope

This week, key focus will be on comments from Federal Reserve officials and the release of the central bank’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index.

Sean McNulty, director of trading at liquidity provider Arbelos Markets, highlighted the importance of Fed officials’ remarks, asserting that their responses to economic data are crucial for market participants to gauge future monetary policy.

As of Monday, Bitcoin rose by less than 1% to $63,389, reflecting modest gains across most major digital tokens. However, over the last seven days, BTC has recorded gains of nearly 10%. This upward movement was mirrored by a climb in US equity futures, reinforcing the interconnectedness of the two markets.

The report further noted that investor sentiment has also been bolstered by recent pledges from Vice President Kamala Harris, who expressed her commitment to fostering investment in artificial intelligence (AI) and cryptocurrencies if she secures victory in the upcoming US election. 

In addition, expectations of further stimulus measures in China following a reduction in borrowing costs have contributed to a positive outlook for the crypto market and the latter part of the year.

Featured image from DALL-E, chart from TradingView.com