The Daily Dive #129 - Bitcoin & Equities Performance Correlation

The recent talk of the town has been the correlation between bitcoin and equities, as the S&P 500 reached as far as 4.2% below its all time highs (the horror). Meanwhile, bitcoin is down closer to 40% below its $69,000 all time high (which is somewhat common for the notoriously volatile asset).

The two assets have been trading in a very correlated fashion since the start of the new year. With the stock market open this morning, both assets sold off in tandem, with bitcoin bouncing first with equities following, which serves as a strong sign for bitcoin investors.

Currently the rolling 1-month correlation between the two assets is +46.7% 

Despite the mostly positive correlation between the two assets over the past 24 months, the S&P 500 is down by 76% in BTC terms since the start of 2020. 

Investors across the equity and crypto markets are keeping a close eye on the upcoming CPI print this coming Wednesday, with the current prediction number at 7.1% year over year. The consensus is that the market's selloff off in inflation comes in stronger than the predicted figure, with higher relative inflation meaning increased pressure for the Fed to hike rates in 2022. 

December 2022 Eurodollar futures, a derivatives market for the expected Fed funds rate in December 2022, expects a baseline rate of 1.21% (implied by a price of 98.79 on the December 2022 Eurodollar Futures contract), meaning the market expects four rate hikes throughout the year.

While the Fed has stated they are committed to begin to start curbing inflation, even four additional rate hikes to 1.25% still would have the Fed funds rate far below current CPI inflation. 

We will cover Wednesdays’s CPI print in depth, while tomorrow’s Daily Dive will be focused on the latest developments on-chain.