Bitcoin's Correlation to Tech Stocks About to Change?
تم تحديثه
The above chart shows the correlation between Bitcoin ( BTC ) and the Nasdaq 100 ETF ( QQQ ).
The correlation between these two is the highest ever. See the chart below for a closer look.
For the stats nerds out there, here are the current correlation values between BTC and QQQ (as measured by using monthly closing prices with a 20-period look back): r value is 0.936, r-squared is 0.7916, p value is 0.
This extreme correlation between Bitcoin and the Nasdaq 100 is unlikely to last much longer. Correlations between assets tend to oscillate over time. Therefore, this extremely positive correlation is likely to oscillate down soon, which will have the effect of weakening the correlation between Bitcoin and Nasdaq 100, or in a more drastic scenario, turn the positive correlation into a negative one.
If the correlation between BTC and QQQ does in fact weaken or turn negative, then it must also be true that both assets cannot continue their strong rallies at the same time. So we're left with an important question: Which asset will outperform the other if the perfect positive correlation ends?
We can use a ratio chart to extrapolate the answer: the BTC/QQQ ratio chart. So let's look at that chart.
In the chart above, we see the price of Bitcoin on the left and Bitcoin's performance relative to QQQ on the right. We can see that even though Bitcoin has been on a bull run, it has already rolled over to the downside relative to the performance of QQQ. When we look at the Stochastic RSI oscillator, as shown in the chart below, we see confirmation that Bitcoin is potentially beginning to oscillate back down relative to its performance to QQQ on the weekly chart.
However, look at what happens when we examine the monthly chart. The exact opposite appears to be true. (See the chart below)
In the monthly chart of BTC/QQQ, Bitcoin is just beginning a major oscillation up. What we're probably seeing is the monthly candle of BTC/QQQ creating a lower wick, which is why it appears that the weekly BTC/QQQ chart is oscillating down.
If we zoom out even further -- to the quarterly (or 3-month) chart -- we see even further confirmation that Bitcoin is set to outperform the Nasdaq 100. (See the chart below)
In the chart above we see a perfect log growth curve of Bitcoin relative to the Nasdaq 100, with bullish reversal candlesticks beginning to form on the quarterly timeframe. We also see the Stochastic RSI ready to oscillate back up, meaning Bitcoin is poised to begin a period of outperformance relative to tech stocks on the higher timeframes.
Other charts lead us to a similar conclusion. In the yearly chart of QQQ/SPY, shown below, we see that the Nasdaq 100 is set to underperform the S&P 500 for the long term. This suggests that the current rally in the Nasdaq 100 stocks is potentially a bull trap or a lower timeframe counter-trend.
As the Nasdaq 100 is set to begin to underperform the S&P 500, the S&P 500 itself is showing downward momentum on its yearly chart. If this downward momentum sustains to the close of 2023, it will mark an incredibly rare, and also quite bearish, signal for both indices.
These, and other, higher timeframe charts are explained in more depth in my post below about the coming period of stagflation. In summary, virtually all of the higher timeframe charts indicate that the period of limitless monetary easing is over, and we've entered into a new supercycle wherein the price of money will remain some degree higher.
So it seems that Bitcoin continues to win. As the stock market indices break out and create what time will likely prove to be another bull trap, Bitcoin is likely on a path toward more sustained bullishness than equities. In the face of stagflation, equities suffer from both a declining money supply (as the central banks fight inflation) and declining productivity. Although Bitcoin is not immune to similar declines, its perpetual scarcity may provide a unique tailwind during the coming period of stagflation.
The correlation between these two is the highest ever. See the chart below for a closer look.
For the stats nerds out there, here are the current correlation values between BTC and QQQ (as measured by using monthly closing prices with a 20-period look back): r value is 0.936, r-squared is 0.7916, p value is 0.
This extreme correlation between Bitcoin and the Nasdaq 100 is unlikely to last much longer. Correlations between assets tend to oscillate over time. Therefore, this extremely positive correlation is likely to oscillate down soon, which will have the effect of weakening the correlation between Bitcoin and Nasdaq 100, or in a more drastic scenario, turn the positive correlation into a negative one.
If the correlation between BTC and QQQ does in fact weaken or turn negative, then it must also be true that both assets cannot continue their strong rallies at the same time. So we're left with an important question: Which asset will outperform the other if the perfect positive correlation ends?
We can use a ratio chart to extrapolate the answer: the BTC/QQQ ratio chart. So let's look at that chart.
In the chart above, we see the price of Bitcoin on the left and Bitcoin's performance relative to QQQ on the right. We can see that even though Bitcoin has been on a bull run, it has already rolled over to the downside relative to the performance of QQQ. When we look at the Stochastic RSI oscillator, as shown in the chart below, we see confirmation that Bitcoin is potentially beginning to oscillate back down relative to its performance to QQQ on the weekly chart.
However, look at what happens when we examine the monthly chart. The exact opposite appears to be true. (See the chart below)
In the monthly chart of BTC/QQQ, Bitcoin is just beginning a major oscillation up. What we're probably seeing is the monthly candle of BTC/QQQ creating a lower wick, which is why it appears that the weekly BTC/QQQ chart is oscillating down.
If we zoom out even further -- to the quarterly (or 3-month) chart -- we see even further confirmation that Bitcoin is set to outperform the Nasdaq 100. (See the chart below)
In the chart above we see a perfect log growth curve of Bitcoin relative to the Nasdaq 100, with bullish reversal candlesticks beginning to form on the quarterly timeframe. We also see the Stochastic RSI ready to oscillate back up, meaning Bitcoin is poised to begin a period of outperformance relative to tech stocks on the higher timeframes.
Other charts lead us to a similar conclusion. In the yearly chart of QQQ/SPY, shown below, we see that the Nasdaq 100 is set to underperform the S&P 500 for the long term. This suggests that the current rally in the Nasdaq 100 stocks is potentially a bull trap or a lower timeframe counter-trend.
As the Nasdaq 100 is set to begin to underperform the S&P 500, the S&P 500 itself is showing downward momentum on its yearly chart. If this downward momentum sustains to the close of 2023, it will mark an incredibly rare, and also quite bearish, signal for both indices.
These, and other, higher timeframe charts are explained in more depth in my post below about the coming period of stagflation. In summary, virtually all of the higher timeframe charts indicate that the period of limitless monetary easing is over, and we've entered into a new supercycle wherein the price of money will remain some degree higher.
So it seems that Bitcoin continues to win. As the stock market indices break out and create what time will likely prove to be another bull trap, Bitcoin is likely on a path toward more sustained bullishness than equities. In the face of stagflation, equities suffer from both a declining money supply (as the central banks fight inflation) and declining productivity. Although Bitcoin is not immune to similar declines, its perpetual scarcity may provide a unique tailwind during the coming period of stagflation.
ملاحظة
QQQ is looking quite like a bear pennant at the current time.
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