Stocks and Bitcoin rally together as decoupling theory fades
Cryptocurrencies and equities are moving in tandem, ending the long-discussed theory of "decoupling" between the two markets.
Despite weak US manufacturing data, equities and cryptocurrencies have remained resilient, supported by Federal Reserve liquidity plans and strong corporate earnings.
The total crypto market capitalisation has increased by 8.5% since March, while the SP 500 has also experienced positive movement in recent weeks.
Cryptocurrency traders had long debated the need for digital assets to decouple from the stock market. However, over the past 10 days, Bitcoin (CRYPTO:BTC) and major altcoins have mirrored the intraday movements of the SP 500, even amid concerns related to trade wars.
The concept of decoupling was seen as a potential validation of digital assets as an independent asset class. It was thought to shield cryptocurrencies from the broader economic risks, such as a global recession.
The stock market, particularly the SP 500, has shown resilience despite persistent trade tensions, including disputes with Canada and Mexico and new tariffs impacting global economic regions.
On April 7, the SP 500 hit a low of 4,835 but has since rebounded to 5,635, supported by strong corporate earnings. Microsoft and Meta both reported better-than-expected results, alleviating concerns over the potential impact of the trade war and AI bubble risks.
Instead of focusing on weak US PMI manufacturing data, market participants are turning their attention to the Federal Reserve's policy decisions.
The Fed is considering asset purchases to provide more liquidity to the market.
While equities have shown strength, the crypto market has outperformed stocks in recent months. Since March, the total crypto market capitalisation has risen by 8.5%, while the SP 500 has fallen by 5.3%.
Though it is premature to declare the SP 500 has hit a definitive bottom, the current strength in both markets highlights reduced risk aversion among investors.
Despite a short-term correlation, the divergence between equities and crypto remains evident over longer periods.
According to recent data, the total crypto market cap has risen by 29% over the past six months, whereas the SP 500 has decreased by 2%.
At the time of writing, the Bitcoin price was $96,397.00.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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