Bitcoin Split From Global Markets to Slide All on its Own
The distress spread across cryptocurrencies by the meltdown of Sam Bankman-Fried's FTX is fracturing the link the tokens once had with other financial assets, a sign that Bitcoin's influence on global markets may be diminishing.
Bitcoin dropped 23% last week, its worst tumble since June, at the same time as the S&P 500 Index soared 5.9%. That helped weaken the correlation between the two to the lowest this year, based on a 20-day study. The performance gap between Bitcoin and the Nasdaq has hit the widest since 2020.
And while major cryptocurrencies turned higher Monday, the gains did little to lift broader market sentiment damped by comments from Federal Reserve Governor Christopher Waller that policymakers had “a ways to go” with interest-rate hikes.
“That idea of using crypto as a high-beta play on risk is fading, because there are easier ways to play that elsewhere that don't suffer from the same systemic risk,” said Chris Weston, head of research at Pepperstone Group. “This is a structural issue, it's about the actual architecture of the crypto system and the confidence you can have in that. Who's next is the question on many people's lips.”
The idea that Bitcoin can form a worthwhile part of a diversified portfolio of risk assets is fraying, with massive losses generated by the revelation that even FTX, until recently considered one of the most blue-chip names in crypto, was unsound. That's a far cry from the optimism at the start of this year, when Bridgewater estimated that 5% of Bitcoin was held by institutional-level investors.
The latest crypto rout came as investors were already souring on the space and as declines in prices shrank the footprint of virtual currencies.
The total market value of all tokens has
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