According to Coinbase’s latest research, the relationship between cryptocurrencies and stocks markets has become remarkable. This trade-off will be around 50% as of September 2024, mainly due to global monetary easing initiatives by major countries such as the United States and China. This study has important implications, especially for investors trying to negotiate these interconnected markets.
The impact of monetary policy
The development of this relationship has been strongly influenced by the aggressive approach of the Federal Reserve interest rate reduction. After a recent 50 basis point drop in interest rates, Bitcoin and cryptocurrency-related stocks posted significant gains.
Bitcoin breached the $64,000 level, while stocks like Microstrategy and Coinbase also showed increasing momentum. This synchronization suggests that when the Federal Reserve implements measures designed to stimulate economic development, both types of assets show positive responses.
Source: Coinbase
Interestingly, data from Bloomberg suggests that US stock futures prices have fluctuated in parallel with those of cryptocurrency. For example, as Bitcoin prices rose, many US stocks also reached new all-time highs.
This simultaneous movement suggests a deeper correlation between how investors assess risk in both markets. Caroline Mauron, co-founder of Orbit Markets, noted that macroeconomic factors are currently driving cryptocurrency prices, a trend that is very likely to continue during the Fed’s easing cycle.
Crypto: Changing Market Dynamics
In the past, cryptocurrencies functioned independently of conventional financial markets. Nevertheless, the sensitivity of these digital assets to macroeconomic conditions has increased as they mature.
This transition is clearly visible in Coinbase’s findings, which indicate that Ethereum has outperformed Bitcoin during this period of increased correlation. Ethereum’s 8% rise against Bitcoin in the week following the Federal Reserve’s announcement suggests that investor interest in altcoins may be shifting.
Source: Coinbase
Although Ethereum’s performance has improved, investors remain concerned about the recent sell-off by the Ethereum Foundation. The foundation recently sold 100 ETH, bringing the total number of ETH sold this year to over 3,500. Such actions have potential effects on the market mood and on the continued growth of projects within the Ethereum network.
Future trends and investor sentiment
Like the link between the cryptocurrency market and the stock market is getting stronger, investors are reconsidering their plans. More and more people in the crypto space want to learn more about areas other than Bitcoin and Ethereum, such as options.
Memecoins such as Shiba Inu and PEPE have recently become popular among investors, with certain sectors – such as gaming and Layer 2 solutions – reporting impressive gains of up to 17% in just one week.
As October approaches – a traditionally strong month for cryptocurrencies – there are suspicions that favorable market conditions could lead to more price increases for both types of assets.
The increasing participation of institutional investors in crypto markets has also influenced this trend, as their trading patterns tend to mirror those of stocks.
Featured image from Pexels, chart from TradingView