Could This Be The Beginning of The End of the Bitcoin-Stock Correlation?

Some observers think so, as Bitcoin (BTC) has fallen significantly more than stocks in May, in what is being called a ‘decoupling.’ However, according to one observer, the apex cryptocurrency could find support as soon as the stock market closes for the week.

Gemini’s ex-Asia Pacific head of business development, Eugene Ng, wrote on Friday that the decoupling between crypto and equities is “probably driven by fund redemptions,” which “should cease by [Friday, May 27]” when stock markets close in the US.

So far, the decoupling has been most notable between Bitcoin and the S&P 500 index, with BTC down close to 24% and the S&P 500 down about 3% since the beginning of May. This rate of depreciation has led many to wonder what is driving these two asset classes to devalue so disproportionately.

While it remains to be seen how long this decoupling will last, it could be an indication that investors are starting to view Bitcoin and stocks as distinct asset classes. Only time will tell if this trend continues.

Meanwhile, one theory on the recent sell-off in cryptocurrencies was due to the Terra (LUNA) collapse on May 9. This event, which knocked more than $83 billion off the decentralized finance (DeFi) sector’s total value, shook confidence in the crypto market and led many investors to cash out their positions.

When it comes to cryptocurrency prices, and Bitcoin’s price movements in particular, they have long been a source of fascination – and confusion – for market watchers. Now, a new analysis from Bloomberg suggests that the crypto asset may be more closely linked to traditional financial markets than previously thought.

The article cites findings from Bespoke Investment Group, which found that BTC “tends to trade relatively flat” on weekdays before the US stock market open. Once the trading starts, BTC “falls off a cliff,” according to the article, with declines averaging 1.5% during regular market hours.

While the link between Bitcoin and the stock market is far from clear, the Bloomberg article suggests that it may be worth paying attention to BTC’s price action in relation to traditional markets.

“Basically all of Bitcoin’s decline over the last month has come when US markets have been open,” Bespoke strategists wrote in a note, adding that to them this “signals that recent declines for Bitcoin have been more about investors raising cash and selling assets more broadly rather than a more Bitcoin-specific trend.”

Taking a slightly different approach, former BitMEX CEO Arthur Hayes took to Twitter to suggest that the recent slump in DeFi tokens could be due to DeFi funds “getting carried out.”

Ouchie, looks like some #Defi funds are getting carried out, probably got the tap on the shoulder due to heavy $LUNA bags. I say that bc $BTC is holding up well vs. the rest of the field. Thanks for playing :) pic.twitter.com/nGafiK5fQ1

— Arthur Hayes (@CryptoHayes) May 27, 2022

This suggests that the people who have been funding the development of DeFi projects are now withdrawing their money, leading to a decrease in demand and price for the tokens. While this is only one theory, it does provide a possible explanation for the recent price movements. Only time will tell if this is truly the reason for the decline, but it is certainly something to keep an eye on.

It goes without saying that the stock market is a fickle beast. Sometimes it does its own thing, and sometimes it mirrors the movements of other markets. For a while now, the Bitcoin-stock correlation has been strong. But could this be the beginning of the end? With more people investing in cryptocurrencies, will the stock market start to move on its own again? Only time will tell.

Price Action

As of press time, BTC is changing hands at $28.748 down about 2% intraday. The $547 billion market cap coin, whose market dominance prints at 46%, traded in a range of $28.326 – $29.524, indicating volatility over the last 24 hours.

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