The Daily Dive - Nasdaq Correlation And Illiquid Supply

Rising Equity Correlation

As we’ve seen many times over the last year, the correlation between bitcoin and risk-on assets is rising yet again as higher-beta assets trend lower while volatility rises. Looking at the hourly charts across Nasdaq futures and bitcoin, the 28-day rolling correlation is just shy of 0.90, showing that bitcoin is trading like a more leveraged basket of tech stocks right now. 

Bitcoin’s latest rally came during one of the lowest volatility periods we’ve seen over the last few months as shown by the VIX falling from 36 to 22. We still expect that volatility in equities hasn’t reached its peak this year which will mean more drawdown potential for bitcoin if we’re to see higher volatility events play out. 

Despite how bitcoin has traded in the short term, its supply profile paints a much different long-term picture. Since the July 2021 bottom just below $30,000, there’s been an increasing accumulation of bitcoin by illiquid supply hands. That bottom was the only period over the last three years where illiquid supply wasn’t increasing over a 90-day rate of change. The 30-day rate of change shows a similar dynamic. 

Today, illiquid supply accumulation growth is rising to its highest level since April 2021. It continues to accelerate over the last few weeks despite a growing medium-term risk for risk assets and a complete lack of speculation in the derivative markets. It’s another sign that convicted long-term holders are not slowing down their bitcoin accumulation and are actually accelerating their buying as of late. 

It’s also probable that $30,000 could be the local bottom we will see this year from an on-chain perspective, but larger deteriorating macroeconomic conditions still pose significant risk for bitcoin’s price appreciation. This year is not painting a strong picture for risk assets at a time when bitcoin is trading exactly like a risk asset. 

The lack of speculative bid mentioned above can best be visualized in the below chart which covers both the decline in the 3-month annualized futures basis and the perpetual futures market funding rate.