Bitcoin has been on an impressive rally since the start of 2021, rising nearly 70% since January 1st. This surge of value was partially driven by investors looking for safe havens as the U.S. financial system experienced some level of instability due to multiple bank failures. The rally was also partly driven by the Nasdaq to S&P 500 (NDX/SPX) ratio increasing by 5.65%. The ratio measures the relative difference in value between technology stocks represented in the Nasdaq 100 and a basket of broader industry stocks from the S&P 500.

In March, the correlation coefficient between bitcoin and the NDX/SPX ratio rose to 0.90, the highest level since June 2022. This strong positive relationship denotes that a rise in the ratio is directly correlated with a lift in bitcoin’s price. This suggests that investor risk appetite is the prime driver behind the cryptocurrency’s gains. Moreover, technology stocks are more sensitive to interest rate expectations than the broader market, making a rising ratio a bellwether for a dovish Fed policy.

Noelle Acheson, the author of the Crypto is Macro Now newsletter, explained that “BTC is still trading like a risk asset” as the NDX/SPX ratio is a good indicator of investor sentiment. However, Acheson also believes that bitcoin has potential to be an asset which is both a risk and a safe haven, as its ability to hedge against currency devaluations may influence long term investors.

Gabriel Selby, Lead Research Analyst at CF Benchmarks concurs, noting the strong correlation between bitcoin and the NDX/SPX ratio suggests that the pricing divergence between equities and crypto markets may not be as wide as initially thought.

It can be seen that the crypto market and risk appetite are heavily interlinked, and bitcoin’s market performance is largely dictated by shifts in investors’ risk appetite. The recent surge in bitcoin’s value has been partly due to investors seeking a safe haven, as well as a show of support for a dovish federal reserve. Although investor sentiment appears to be the main driver behind bitcoin’s value increase in the short-term, it is likely that the cryptocurrency will also be viewed as a safe haven asset, in which case investors will benefit from currency debasement hedge properties.



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