The evolving investor perception of BTC has turned it into a classic risk-on asset. This means the relative performance of Bitcoin price is similar to that of the equities on the NASDAQ and the S&P 500.
To illustrate this, Bitcoin has shown a 76% correlation with the NASDAQ 100 over the past year.
Although BTC’s volatility has indeed reduced over the past few years, a closer look at the macro factors influencing traditional stocks can help us gauge Bitcoin’s price potential.
With Bitcoin down roughly 4% over the past month, it’s clear that optimism about a potential Federal Reserve rate cut hasn’t sparked a decoupled rally just yet.
Market observers are now awaiting a likely rate cut decision from the Fed in the FOMC meeting next week.
This decision could result in a temporary boost for both BTC and traditional stocks, but are there other factors at play that could affect the Bitcoin price?
How Fed Rate Cuts and ETPs Are Binding Bitcoin Price to Tech Stocks
BTC USD’s recent trajectory has confirmed a stronger link with the sentiment surrounding the US tech stocks.
To fully put this into context, Bitcoin price correlation with NASDAQ has increased to a whopping 92% over the past six months.
As we can see, the correlation between the two began climbing sharply in September last year and has remained relatively high ever since.
Several macro factors have contributed to this correlation, with the most significant being the aggressive rate cuts by the US central bank.
The Fed lowered its benchmark fed funds rate by 50 basis points in September 2024, which increased the correlation between crypto and traditional stocks.
In fact, the launch of several Bitcoin exchange-traded products (ETPs) by TradFi players over the past year has also contributed to this increase in correlation.
From a risk management perspective, it’s becoming clear that adding Bitcoin to a portfolio heavily invested in tech stocks offers little diversification benefit for investors at present.
Having said that, most Web3 experts believe that Bitcoin will eventually embrace its “digital gold” status and decouple from equities.
Until that happens, investors need to closely track impactful market updates like the possibility of a Federal Reserve rate cut decision on September 17.
Smart Money Bets on Rate Cuts as Bitcoin ETFs See $1.9 Billion Inflows
While altcoins are showing some momentum in the crypto market, the possibility of a bull run across the board will increase if macro uncertainty decreases.
The best-case scenario for Bitcoin price would be clear confirmation that the Fed is sticking to its anticipated rate-cut path, or even accelerating it.
But any hesitation from Chair Jerome Powell, which would depict a hawkish stance, could stall the BTC rally.
The VIX (CBOE Volatility Index) is currently near the lower end of its yearly range, at about 14.76.
This indicates that the volatility in US equity markets is relatively low, aligning with a generally calm or optimistic sentiment.
However, smart money is evidently betting big on the rate cut, as Bitcoin ETFs record a net inflow of more than $1.9 billion over the past three days alone.
