Bitcoin continues to lose momentum on low timeframes, as bulls were unable to follow through on yesterday’s upside impulse. Bitcoin was rejected at the mid-range of its current levels. It might now be subject to a fresh test of local support.
Bitcoin prices trade at $20,000 as of the writing. There has been a 1% loss in Bitcoin and a profit of 3.3% over the last 7 days and 24 hours, respectively. BTC’s negative performance in price is not indicative of other top cryptocurrencies by market capital.
Bitcoin at Record-setting Correlation with Gold and Equities in 2022
Kraken Intelligence’s data shows that Bitcoin has increased its correlation with traditional assets of the legacy financial markets and risk-on asset. The phenomenon was common throughout 2022 as the global financial markets react in unison to U.S. Federal Reserve.
Inflation in the U.S. Dollar has been slowed down by increasing interest rates. All asset classes have suffered from this.
As seen in the charts below, the price of Bitcoin saw a decline in its correlation with major equities indexes, the Nasdaq 100 and S&P 500. This correlation has fallen to below 0.5 in the last months but it is now at a high level of 0.8 and 0.74 respectively.
Similar trends are occurring with U.S. Treasuries and Gold. Bitcoin is not as closely correlated with stocks and U.S. Treasuries than stock, however, this seems to be shifting in light economic uncertainty.
The Earnings Seasons Could Capture Bitcoin Bullish Momentum
The data suggests that Bitcoin could be more susceptible to events relating to stocks and major indices. Jurrien Turner, director of Macro for Investment company Fidelity believesTraditional assets might face challenges in the coming earnings season.
Timmer backs his claim about the U.S. Dollar’s recent rally, measured using the DXY Index. The DXY Index allows market participants to see the strength and weakness of the dollar compared to, for example, the Japanese Yen, British pound or the Euro.
We see the same disconnect in the chart below, when comparing the dollar’s rate of change to the expected EPS growth rate (NTM divided by LTM). It seems that estimates should fall faster. /4 pic.twitter.com/G49jAMu0Y0
— Jurrien Timmer (@TimmerFidelity) October 6, 2022
These currencies are also less stable than the DXY Index. Timmer claims that 40% of the S&P revenue comes from abroad which could lead to a noticeable negative impact on profit margins and U.S. companies’ earnings. According to the expert:
Revenue growth is expected to drop to 4%, and then stay at that level. Given that the DXY’s rate of change is +19%, that seems too high. We might see negative surprises in earnings based upon the market breadth as well as the dollar.