Bitcoin and Stocks Are Falling Together Again. What’s to Blame.

The stock market declined as investors grappled with uncertainties over the pace of rate hikes from the Federal Reserve as the central bank works to cool inflation. The S&P 500 dropped 1.2% for the week and the tech-heavy Nasdaq Composite tumbled 2.6%.

Stocks, like Bitcoin, have come off their June lows. But with equities once again trading lower and Bitcoin on the back foot, Barron’s asked experts if there was a correlation between the two.

“[Bitcoin’s moves] definitely follow the market. There’s no question, and that’s been especially true on days when the market has been down a lot,” Tom Essaye, founder of Sevens Report Research, told Barron’s. “When markets were going up, Bitcoin was going up more. Now, the markets are going down and Bitcoin is going down a lot more.”

Essaye said he expects that Bitcoin’s price will move in tandem with stocks as the Fed moves further in its rates-hiking cycle and while Wall Street debates the possibility that the central bank can achieve a soft landing for the U.S. economy.

“If this is really a bear market rally then Bitcoin is not done going down, just like stocks are not done going down. And if this isn’t a bear market rally and the Fed achieves a soft landing, Bitcoin will probably rally substantially from where it is now, but we just have to wait and see,” Essaye added.

Oanda’s senior market analyst, Craig Erlam, told Barron’s there has been a correlation many times this year between Bitcoin and the stock market, most notably seen in the Nasdaq and high-growth tech stocks. However, on a day-to-day basis, Erlam said Bitcoin and the markets have behaved differently.

“There’s been times when Bitcoin has actually been a lot more resilient than the stock markets, when the stock markets have been down, and Bitcoin has been treading water.” Erlam said. “I feel like it recovered a little bit quicker as well, so I don’t feel like the relationship has been quite as strong the last few weeks as it has for the vast majority this year.”

Erlam added that the stock market’s drop Friday could be a contributing factor to the drop in the price of Bitcoin, but the scale of the decline is “incomparable.” He thinks “we are probably looking at something transactional that hit the Bitcoin price quite considerably.”

Siddharth Singhai, chief investment officer at IronHold Capital, told Barron’s that it’s almost impossible to know why Bitcoin was down, but with uncertainty over future rate-hike decisions from the Fed it could be a “sentiment-driven decline, where people are not comfortable enough and are moving more to risk-less assets, like Treasury bills.”

Whether or not experts agree that Bitcoin’s move lower was caused by a drop in stocks, both Essaye and Erlam said the “crypto winter” is not over yet.

“You can’t say there’s an end to the crypto winter until we know what’s going to happen to the economy,” Essaye said. He added that “Bitcoin is no different than anything else. It’s waiting on the resolution of what’s going to happen with the economy, and nobody knows.”

Write to Angela Palumbo at angela.palumbodowjones.com