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Bitcoin’s Recent Rally Underscores the “Low Correlation” of Crypto with Traditional Assets: Expert

Bitcoin (BTC) has demonstrated resilience by reaching a more than 19-month high, defying a global market downturn. The cryptocurrency experienced a 5.8% surge, reaching $42,000 on Monday and maintaining its position just below that level during morning Asian trading on Tuesday.

In stark contrast, global shares and bonds have been grappling with losses since the start of the week. This divergence underscores the present low correlation between cryptocurrencies and other traditional macro assets, as noted by Sean Farrell, the head of digital-asset strategy at Fundstrat Global Advisors LLC, in a statement to Bloomberg.

Throughout 2023, Bitcoin has experienced diminishing correlations with stocks and gold, with specific factors in the crypto market driving a remarkable 152% surge in the value of the largest digital asset.

A significant driver behind these gains is the anticipation of the United States approving its first spot Bitcoin exchange-traded funds (ETFs), potentially expanding the demand for the token.

The 90-day correlation coefficient between Bitcoin and MSCI Inc.’s global shares index has decreased from 0.60 to 0.18 since the beginning of the year.

Similarly, an analysis of the correlation between the token and spot gold reveals a drop close to zero from 0.36. A correlation coefficient of 1 indicates assets moving in tandem, while minus-1 signifies opposite movements.

Regulation Impacts Crypto Market in the US

Regulation stands out as a significant factor shaping the crypto market landscape. Executives within the industry are growing more optimistic, perceiving that the most challenging phase of the U.S. crackdown on the sector may be in the past.

Recent developments, including the imprisonment of Sam Bankman-Fried for fraud at FTX and substantial fines levied against the leading crypto exchange Binance and its founder Changpeng Zhao for U.S. anti-money-laundering and sanctions violations, have fostered a belief that U.S. authorities and regulators have already communicated their stance. This has fostered hopes for more constructive dialogues between regulators and industry participants.

It’s important to note that certain technical indicators, such as the 14-day relative strength index (RSI), imply that Bitcoin’s rally might be overextended, as the index sits at 75, surpassing the 70 overbought level.

Nevertheless, speculative interest remains robust, fueled by expectations that the Securities & Exchange Commission will approve U.S. spot Bitcoin ETFs by January. Furthermore, investor confidence has been buoyed by bets on potential future interest-rate cuts by the Federal Reserve.

In a filing on Monday, online brokerage Robinhood Markets reported that its notional crypto trading volumes in November were approximately 75% higher than October levels. This suggests a sustained and growing interest in cryptocurrency trading among investors.

Similarly, the shares of publicly traded crypto companies listed in the U.S. have witnessed a surge in tandem with the rising BTC price.

On Monday, the stock of the well-known crypto exchange Coinbase saw a notable 7.3% increase before the market opened. Despite reporting a decline in third-quarter trading volumes, the stock experienced a remarkable surge of nearly 62% in November.

Microstrategy, a prominent Bitcoin investor that acquired bitcoins worth $593 million the previous month, also recorded an 8.2% gain, reflecting the positive impact of the cryptocurrency’s market performance on related companies.

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I want to save money. Will cryptocurrency work?

Cryptocurrency is essentially virtual money that operates in a decentralized manner, not through a bank but directly on multiple independent computers.

Every cryptocurrency has two main components: the units of digital exchange called “coins” and the network within which the exchange takes place. These units can be transferred between wallets and exchanged on exchanges. The networks in which these coins exist are called blockchains, which translates to “chains of blocks.”

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