Bitcoin, the leading cryptocurrency, is trading in lockstep with technology stocks once again, according to a Friday report by Bloomberg.
The 90-day correlation between the flagship cryptocurrency and the tech-heavy Nasdaq 100 index has reached 0.46, the highest level in almost a year.
The increasing correlation undermines the portfolio diversification narrative that is frequently being pushed by Bitcoin proponents.
Earlier this year, Bitcoin’s correlation with stocks declined significantly. In fact, it turned negative in April, according to Fidelity’s Jurrien Timmer.
The correlation between the largest cryptocurrency and equities tends to fluctuate based on macro-financial conditions. For instance, it soared to as high as 0.50 in May 2022. It also surged through the roof in 2020 during the QE era.
Earlier this week, major US stock market averages managed to jump to record highs after the most recent CPI report showed declining inflation in the US.
Bitcoin has also rebounded, reclaiming the much-coveted $67,000 level and reaching the highest price point since early April.
The latest inflation data has revived bullish sentiment since Wall Street believes that the U.S. Federal Reserve might now end up cutting rates multiple times this year. Lower borrowing costs would be hugely beneficial for risk assets like stocks and crypto.
However, the Fed has yet to break the back of inflation, which might suggest that this investor optimism could be premature.
Earlier today, U.S. Federal Reserve Governor Michelle Bowman predicted that inflation would likely remain elevated “for some time.” However, Bowman has stressed that she would be willing to hike rates if needed.