The correlation between Bitcoin and a gauge of US tech stocks hit a two-year high, indicating that the stock market’s reaction to US inflation data due later on Wednesday could set the tone for the digital tokens.
Concerns about the Fed
The 30-day correlation coefficient for the largest cryptocurrency and the Nasdaq 100 index is around 0.70, according to data compiled by Bloomberg. A reading of 1 indicates that the asset is moving in step, while a minus 1 signals a reverse alignment.
The inflation report is expected to show firm price pressures just as markets worry about the possibility of further interest rate cuts by the Federal Reserve amid a strong US economy and uncertainty over the impact of Donald Trump’s agenda.
Bond yields and the dollar have risen against this backdrop, while stocks and cryptocurrencies are under pressure. Bitcoin changed hands at $97,000 at 6 a.m. Wednesday in London, roughly $11,300 below last month’s record high.
Trump’s inauguration
President-elect Trump will be sworn in on January 20 and could start a political blitz, SEEbiz reports. Speculators weigh the risk of inflationary tariffs and immigration policies against his promise to make the US the global home of cryptocurrencies.
“The overall sensitivity to interest rates over the past month points to the heightened importance of Wednesday’s CPI print,” K33 Research analysts Vetle Lunde and David Zimmerman wrote in a note. “Additionally, significant Trump momentum could still be generated in the days leading up to the inauguration.”
Hedging activity is strengthening in the options market, signaling that investors are ready for increased volatility, according to trading platform Derive.xyz.
The share of bearish bets rose, indicating “protection against potential downside risks as we approach the inauguration,” said Derive.xyz head of research Sean Dawson.
