Bitcoin remains the main cryptocurrency , pawning the movement of the entire market. About the rest of the crypt, we can say that it goes after bitcoin. But what or who does bitcoin follow then? Behind the stock market. Three of the most popular stock indexes reflect it in the most complete way: S&P 500, DJI and NASDAQ. Today we will talk about the latter.
What the NASDAQ is talking about
Nasdaq is the NASDAQ stock index . It is formed based on the market capitalization of large international companies. Most of them are companies in the technology sector (Apple, Meta, Google, Adobe, Amazon, etc.) But in total, there are more than 3,000 different stocks included in Nasdaq, and this number is constantly changing.
The higher the market capitalization of a company, the more it affects the overall Nasdaq index . That is why it is so important to track the reports of large technology corporations, because they set the trend for this stock index.
Below are charts of Bitcoin (orange) and Nasdaq (blue) from September 2021 to today.
With the naked eye, you can see how similar the movement of these graphs is. Last November, the NASDAQ peaked, and the same month, the price of bitcoin performed accordingly. Then began a long decline , which continues to this day. Moreover, periodic take-offs are almost exactly repeated.
For example, you can pay attention to a narrower time period: from February to mid-June of this year.
With these graphs, you can practically play Spot the Differences. Bitcoin is definitely following the Nasdaq index.
Correlation of BTC and NASDAQ
The higher the correlation , the stronger and more often bitcoin and nasdaq repeat each other. Simply put, correlation tells you how strongly the cryptocurrency market reacts to the stock market.
For example, a correlation coefficient of 0.7 indicates that with a probability of 70% bitcoin repeats the movement of the Nasdaq index, and with a probability of 30% it deviates from the trend of the stock index.
The graph shows the dynamics of the Pearson correlation coefficient between Bitcoin and the Nasdaq index from November 2021 to the present.
See this rather large segment, when the correlation line was almost straight, and the coefficient was in the range from 0.8 to 1? From mid-March to mid-July, that is, for 4 whole months, there was a high correlation between bitcoin and nasdaq. At this time, the cryptocurrency market practically repeated the stock market. But then something went wrong.
On July 25th, the correlation index fell to a record low since December last year – 0.32. That is, at this point, Bitcoin could already deviate from the movement of the Nasdaq index with a probability of 68%.
Stock markets were waiting for the publication of reports of large companies, as well as the Fed ‘s decision on the base interest rate. As soon as the reports began to emerge, Nasdaq followed an uptrend , and Bitcoin reacted as well. The correlation coefficient began to rise.
The analysis carried out allows us to conclude that Bitcoin follows the NASDAQ index. This happens for a very simple reason. The large technology companies whose stocks are included in the Nasdaq index have enormous influence among the major investment players in the market. Roughly speaking, most investments today are where the assets of IT companies are concentrated. And Bitcoin, like the entire cryptocurrency market, needs large investments in order to show significant growth.
In addition, more and more companies whose shares make up the NASDAQ index own bitcoin. For example, Tesla, MicroStrategy and Digital Currency Group invest in Bitcoin with corporate savings. Moreover, the total ownership of MicroStrategy bitcoin is 129,699 BTC. That is, to some extent, bitcoin is already built into the nasdak.
Another issue is that the stock market is highly influenced by the inflation rate. And if the market goes into a long recession, bitcoin can act as an alternative to an unstable fiat currency. And then we will be able, in a relatively long term, to observe a picture in which Bitcoin grows with a falling or unchanged NASDAQ index.