Historically, Bitcoin and cryptocurrencies as a whole have been correlated with stocks – institutional investors still consider crypto to be a risky, speculative asset, and as such, investment flows have trended similar to those of stocks.
In this article, we take a look at the numbers leading up to and including this year, using the data to judge whether or not there’s still upside left.
In major bull market years such as 2017 and 2019, when the NASDAQ went up by 28.24% and 35.23% respectively, Bitcoin went up by over 1,300% and 87%. This reinforces the thesis that bull markets propel both stocks and crypto in a similar manner, with crypto seeing gains that are sometimes exponentially greater than those of stock markets.
And when the NASDAQ declined by 3.88% and 32.4% in 2018 and 2022, respectively, crypto declined by 72.63% and 64.24%. Not surprising.
It’s safe to say that by looking at the numbers, we can assume that Bitcoin and stocks, particularly tech stocks, have been heavily correlated with each other.
2024 and The “September Effect” – Have We Reached an Inflection Point?
2024 has been a historic year: the world economy has been wracked by inflation, caused by massive post-COVID stimulus packages passed in 2021.
Now that inflation fears have abated, central banks around the world are cutting rates to combat a potential recession, but markets are still worried that rate cuts may not be enough, as indicated by the recent market decline.
As of August 21, Bitcoin was up about 34% while the NASDAQ has gained 20%, reinforcing the thesis that the two are highly correlated with each other.
(Source: Ecoinmetrics)
And when stock markets tanked in August due to fears of a global recession and the unraveling of the Japanese yen carry trade, crypto tanked as well.
But let’s look at September.
Historically, risk assets struggle in August and September, with September being particularly challenging. This is a trend widely known as the ‘September effect,’ affecting both cryptocurrency markets and stocks.
For the majority of the last five years, Bitcoin has tended to dip in the month of September, with 2014 and 2022 showing the largest drawdowns.
(Source: Kaiko)
Now we are still midway through September. Bitcoin is trading around $58,000, and Ethereum is at $2,300 – significantly down from their all-time highs of $71,000 and $4,000.
What traders want to know is – could it get worse? Or is there still upside for the rest of the year?
It’s hard to say.
On one hand, interest rates are finally coming down after hovering at their highest levels in over twenty years. Major central banks around the world have already cut rates, and the Fed is about to announce its biggest decision of the year next week. Positive vibes propelled by the upcoming U.S. Presidential election could also push the envelope further.
On the other hand, markets are fearful that the Fed won’t cut rates hard enough to avoid a recession, and in response, both Bitcoin and the NASDAQ have dipped in September by 4.4% and 0.8%, respectively.
After all, the NASDAQ is still hovering around all-time highs, having increased by 51.9% last year and 20% this year through the end of August. How much higher can it possibly go? Only time can tell.
Key Takeaways
- Bitcoin continues to be highly correlated with stocks, with Bitcoin and the NASDAQ averaging 77.18% and 16.97% annual gains over the last seven years. This year, Bitcoin has surged by 34%, as of August 21, while the NASDAQ has grown by a solid 20%.
- Is there more upside for Bitcoin? On one hand, interest rate cuts around the world and the prospect of a new U.S. presidential administration could propel markets past all-time highs, but on the other hand, a potential recession could also dash those prospects.
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