Bitcoin Sniffing Out a Dip in Market Liquidity
Bitcoin Reflecting a Local Top in Market Liquidity
During the majority of Q1 and early Q2, the financial market observed a strong correlation between Bitcoin (BTC), equities, and gold, with an even more pronounced link between BTC and gold. This close relationship was a result of global market liquidity reaching its lowest point in Q4 of 2022, which coincided with a slowdown in inflation and (likely) the final stages of the Federal Reserve's tightening cycle. This relationship continues to be evident in the 90-day rolling correlations between these assets.
However, zooming in, it appears that the correlations between Bitcoin and these other liquidity-sensitive assets have been deteriorating recently. The chart below illustrates that BTC has become virtually uncorrelated with both SPX and gold over the trailing 30-day period. We think this shift may indicate an ongoing short-term change in market dynamics.
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