Bitcoin surged to a 19-month high, shrugging off a global market downturn, signaling its divergence from other assets. While global shares and bonds were in decline, Bitcoin jumped 5.8% to reach $42,000, showcasing its detachment from traditional markets.
The disconnect between Bitcoin and conventional assets highlights a reduced correlation, emphasized by Sean Farrell of Fundstrat Global Advisors LLC. Factors unique to crypto have powered its 152% surge in 2023, notably the anticipation of the US introducing its first spot Bitcoin exchange-traded funds, expected to boost demand.
Bitcoin’s correlation with stocks and gold has notably waned this year. The 90-day correlation coefficient for Bitcoin and MSCI Inc.’s world shares index dropped to 0.18 from 0.60 at the year’s beginning, while its correlation with spot gold plummeted from 0.36 to nearly zero.
Regulation remains a significant factor, with recent crackdowns on figures like Sam Bankman-Fried and Binance’s Changpeng Zhao. However, sentiments are shifting, indicating potential dialogues between crypto executives and regulators.
Technical indicators suggest Bitcoin’s rally might be overstretched, as indicated by the 14-day relative strength index exceeding the overbought threshold. Speculative interest is rising, fueled by predictions of a Securities & Exchange Commission approval for US spot Bitcoin ETFs and expectations of Federal Reserve interest rate cuts next year.
Increased crypto trading volumes reported by Robinhood in November signal growing investor interest. The sustainability of Bitcoin’s rally hinges on the outcome of the spot ETF decision, according to research provider Kaiko.
