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 After the Crypto Crash, Bitcoin Believers Are Back to Monitoring Stocks

Investors in digital assets are once again concentrating on the tone of the US stock market as a sign of whether the worst may be over after a gut-wrenching period of instability and existential anguish.

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The majority of stocks have increased in value over the previous few weeks, while Bitcoin has risen by 15%. After significantly declining in June, the 90-day correlation coefficient between Bitcoin and the S&P 500 is once again at 0.65, one of the strongest readings found in Bloomberg data going back to 2010. A coefficient of 1 indicates that the assets are moving in unison, whereas a coefficient of -1 indicates that they are moving in opposition to one another.

If stocks have bottomed, then cryptocurrencies will do better than they have in the past, according to Bloomberg Intelligence analyst Mike McGlone. When the stock market declines quickly, as it did in the first half, there are a few factors in the market that are more strong. A portion of that receding wave is cryptos.

The theme has persisted throughout the year as both equities and cryptocurrencies have moved similarly. Background factors include a hawkish Federal Reserve determined to rein in inflation that has been four decades high and has been a major cause of volatility for a variety of assets in 2022.

The bottoms are only noticeable after the fact, so it's feasible that both stocks and cryptocurrency may revisit their lows later this year or possibly early next year. However, no one can say with any real certainty if equities and cryptocurrency have reached their lows.

A well-defined decline channel is where active Bitcoin addresses are located, according to analysts at cryptocurrency researcher Glass Node. Network activity, they continued, "suggests that there has not yet been much of an infusion of fresh demand." The transactional demand, however, has recently moved in a sideways or downward direction, indicating that "only the stable base of higher conviction traders and investors remain." On-chain transaction costs are also in the bear-market territory; if they start to rise, it may be a sign that the economy is starting to revive.

The analysts noted in a report that "the 2022 bear market has traditionally been detrimental to the digital asset area." However, following such a protracted period of risk-off mood, the focus is now on determining if the current rise is a bear market relief rally or the beginning of a sustainable bullish impulse.

For Bitcoin, Ether, and other cryptocurrencies, July was a terrific month. The number two cryptocurrency gained 70%, posting its highest monthly performance since January 2021, while Bitcoin increased by 27% for the month, the most since October. According to CryptoCompare, overall volumes of the Tether stablecoin for Bitcoin and Ether increased during the month, demonstrating that investors saw them as safer cryptocurrency markets.

Even if the price of the cryptocurrency has increased recently, it is still far below the highs it achieved at the end of last year. Since November, when it was about $69,000, Bitcoin has been circling around $23,000. Even attention-grabbing news, like Coinbase's recent agreement with BlackRock, hasn't been able to awaken the coin from its lethargy and propel it higher.

According to Katie Stockton, founder and managing partner of Fairlead Strategies, a research business that specializes in technical analysis, "Crypto has higher volatility and therefore inherently is riskier, and it would make sense that investors seek to regain confidence following the downdraft they've seen." She did, however, add that cryptocurrency investors were drawing clues from the stock market and that there was a reciprocal link. "Given that both are risk assets, it seems acceptable."

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