How Crypto Events and Federal Policies Are Shaping Market Correlations

Recent data from Coinbase Research exposes a significant change in the crypto market: as of September 2024, the link between crypto and stock markets is hovering around 50% and shows a historically unprecedented highest point.

Recent data from Coinbase Research has highlighted a significant development in the crypto market. As of September 2024, the correlation between crypto and stock markets has reached an all-time high of around 50%.

This close link is largely attributed to the global monetary easing programs undertaken by China and the US. Such economic policies not only strengthen the connection between the two financial markets but also present both opportunities and challenges for investors navigating these interconnected domains.

The synchronization between crypto and stocks becomes particularly evident when considering Bitcoin’s surge past the $64,000 mark and the performance of other crypto-related equities, such as Coinbase (COIN) and MicroStrategy (MSTR).

This marks a substantial shift from the past, where cryptocurrencies were largely insulated from traditional financial markets. As crypto’s sensitivity to broader macroeconomic conditions evolves, the crypto market is becoming increasingly responsive to world economic policies.

Several key events in the crypto space follow this growing correlation, including the Solana Breakpoint conference in Singapore and the TOKEN2049 event in Singapore. These developments coincide with the Federal Reserve’s aggressive interest rate strategy, where a 50-basis-point rate decrease elicited positive reactions in both the stock and crypto markets.

Indeed, US market futures and crypto values rose in tandem, with many US stocks hitting all-time highs. Statistics from Bloomberg further attest to this trend, indicating that the 40-day correlation coefficient between the top 100 cryptocurrencies and the S&P 500 had risen to 0.67.

At 0.72, the last time this coefficient reached such high levels, it suggests that traditional and crypto finance have grown ever more entwined. Orbit Markets co-founder Caroline Mauron sheds light on the macroeconomic factors behind this tendency, highlighting that these macro factors, driven by the Federal Reserve’s easing cycle, are currently guiding crypto values and will likely continue to do so.

Co-founder of Orbit Markets Caroline Mauron clarified the macroeconomic causes behind this tendency. She underlined that because the Federal Reserve keeps its easing cycle, these macro factors are currently guiding crypto values and would probably keep doing so.

This represents a major change from the past since cryptocurrencies mostly functioned free from traditional financial markets. The crypto market is becoming more reactive to world economic policies as its sensitivity to more general macroeconomic conditions develops.

Among this rising correlation, Ethereum has notably outpaced Bitcoin, with an 8% increase over the latter in the week following the Federal Reserve decision. This move reflects a growing interest in altcoins among investors, highlighting the changing dynamics of the crypto market.

However, Ethereum’s recent performance also raises questions regarding its sustainability. With the recent sale of 100 ETH by the Ethereum Foundation, out of a total of 3,566 ETH sold this year, queries arise concerning the potential impact on market sentiment and the broader Ethereum ecosystem.

Moreover, Layer 0, gaming, and scaling solutions continue to be strong performers, with growth of 9%, 17%, and 11%, respectively, over the past week. These developments showcase that investors are exploring opportunities in other crypto assets that have demonstrated resilience and growth potential, expanding their interests beyond Bitcoin and Ethereum.

As we approach October, a month that has historically favored cryptocurrencies, the market is poised for potentially strong performance. Given that Bitcoin has shown a positive return in eight of the past 10 Octobers, speculation abounds that this trend may persist, especially with the increasing institutional participation in the crypto market.

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