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Correction in the cryptocurrency market: sign of problems ahead?
It seems to have become a trend that once journalists start focusing on a pattern in the financial market, it stops working. The same happened with cryptocurrencies.
In mid-May, it was reported that the 90-day correlation coefficient between Bitcoin and the tech-heavy Nasdaq 100 index reached 0.46, the highest level since late August.
However, over the past week, while the index of major technology companies rose more than 4.4%, the BTCUSD fell 0.95%.
This begs the question: what is causing the loss of correlation and how long will it last?
The decoupling began before the FOMC rate meeting and intensified after Jerome Powell’s speech, in which the Fed chair again made aggressive comments.
Specifically, he said recent data indicates “some easing” in inflationary pressures, but not yet enough to start easing monetary policy.
The main surprise was that the Fed’s updated forecast calls for a rate cut in 2024, down from three cuts in March, as the job market remains strong and the economy resilient.
Where did the money go if not into cryptocurrencies?
While the regulator’s signal could have been more encouraging, investor enthusiasm for the stock market, particularly technology stocks, remained strong.
Apple’s presentation at WWDC contributed and investors reacted positively, albeit belatedly. The rise in stock prices began the day after the AI product was announced.
Small-cap stocks represented by the Russell 2000 Index also remained subdued, as did the cryptocurrency market. The index is still nearly 18% below its 2021 all-time high.
What’s next?
In the case of the stock market, strategists at Goldman Sachs Group raised the end of the year forecast for the S&P 500 index 5,600 points from the previous 5,200.
They justified their decision to raise their forecasts for the third time in less than a year with a lower-than-average level of negative earnings and a higher P/E ratio.
However, for this to happen, inflation data must continue on a downward path and the economy must show no signs of slipping into negative growth territory.
Will cryptocurrencies follow the same path?
For now, all available investor funds appear to flow into the “Magnificent 7”, leaving little space for digital assets. Recent low trading volumes haven’t helped either.
However, many experts maintain a positive outlook, especially for Bitcoin, predicting targets above $100,000. Some even expect $1 million per coin.
Approach these prospects with caution. Robert Kiyosaki is also known for his constant optimism that Bitcoin could go “to the moon”, but we are still waiting for that to happen…
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