[New Momentum]
The leading cryptocurrency bitcoin has gained significant momentum over the past seven days, rising 10.2 percent against the US dollar. After a lackluster spring, the de facto digital gold seems to be reaching toward a new ATH.
[Inverse Correlation with US Dollar]
There are multiple factors behind bitcoin's recent strength. Firstly, the US dollar has weakened recently and bitcoin has historically been inversely correlated with the USD: when the dollar goes up, bitcoin weakens, and vice versa.
[Potential De-Escalation]
While tariffs imposed by Donald John Trump’s government have scared the markets, recent developments indicate a possible de-escalation. Trump is clearly using the tariffs as political leverage, meaning that the final figures could be more moderate than expected.
There have also been talks of a potential peace deal in Ukraine. If realized, the deal would be warmly welcomed by investors.
These two de-escalation scenarios would greatly uplift high beta assets, including cryptocurrencies.
[Decoupling]
The most important trend currently is bitcoin's decoupling from the stock market indices. Within the past seven days, bitcoin has clearly separated from both S&P 500 and Nasdaq Composite, indicating weakening correlation to both traditional and technology-related stocks.
Bitcoin's correlation with the S&P 500 reached 0.88 in late 2024, while it now has dropped to 0.77. The correlation with Nasdaq Composite has been reduced from January's 0.91 to the current 0.83.
[Digital Gold]
Interestingly, bitcoin's correlation with gold has been growing, rising from early month -0.62 coefficient to the current -0.31. Bitcoin shares its scarcity attributes with gold, while the former is scarcer.
Additionally, bitcoin has a tendency to follow gold's trajectory with a couple of months' lag. If we assume that the current decoupling continues, gold could act as a leading indicator to bitcoin, ceteris paribus.
Written by oinonen_t
