Bitcoin Decouples From Stocks As Fed Decision Looms

Daily Transactions Hit All-time High Driven By Ordinals

By: Owen Fernau Loading...

Bitcoin Decouples From Stocks As Fed Decision Looms

After remaining elevated for most of 2022, Bitcoin’s correlation to equities has plummeted to 12%, a level not seen since mid-2021.


BTC vs World Stocks

James Butterfill, head of research at the investment firm Coinshares, first pointed out the decoupling on Twitter.

In an interview with The Defiant, he said he wasn’t surprised by the development. “Equities never do well, with the prospects of recession, but something like Bitcoin will do quite well because it’s like a monetary policy hedge,” he said, adding that the two are fundamentally different kinds of assets.

In Butterfill’s view, the idea that Bitcoin is a leveraged bet on tech stocks is a flawed one. “It was very frustrating last year, when I just saw these tweets coming out saying Bitcoin is just another risk asset,” he said. “I thought that was such a naive and short-term view.”


Bitcoin was largely grouped as “just another tech stock” in 2022 as rising interest rates seemed to bring down equities and crypto together. Now, with elevated rates starting to cause significant problems in the banking sector, BTC may be entering an environment where it can thrive while equities don’t.

Butterfill emphasized that with the banking sector showing signs of stress, it’s clear that the US Federal Reserve may have made a mistake. The central bank is in a tough position – it can either lower rates, potentially pushing persistent inflation even higher, or it can raise rates, continuing to wreak havoc on the banking system.

Bitcoin has tended to trend higher when banks fail, which has happened three times this year, going by the Federal Deposit Insurance Corporation’s (FDIC) count. The three failures represent three of the top four failures in US history based on the assets held by the institution at the time of failure.

Jordi Alexander, an investor at Selini Capital who spoke to The Defiant about the “all one trade” phenomenon nearly a year ago, added that liquidity for BTC is currently low. This makes it easy for large buyers and sellers to push the price of the digital asset around. “A billion-dollar flow in either direction can be enough to overpower the equity correlation,” he said.

Both Butterfill and Alexander think that if the United States enters a period of stagflation, characterized by low growth coupled with high inflation, BTC will have a chance to shine.

Digital Gold

And it’s not just Bitcoin. The digital asset’s correlation with gold rose to a two-year high in April, according to data provider Kaiko. As gold approaches its all-time high above $2,000/oz, Butterfill thinks the precious metal is also entering an environment where its relatively stable supply will attract capital.


BTC correlation with Gold. Source: Kaiko

Dollar Drop

Butterfill also noted that BTC tends to trade inversely with the dollar, and that if the Fed cuts interest rates tomorrow, the dollar index (DXY) will continue to slide. “Rates will probably stay elevated for some time, but they will start backing off,” he said.

DXY has dropped nearly 10% in the last six months, according to TradingView.

Ordinals Fuel Bitcoin Activity

Outside of macroeconomics, Bitcoin usage is also picking up in a big way thanks to the advent of Ordinals, a way of storing data on the world’s most valuable blockchain.

Transactions hit an all-time high on May 2 at roughly 682,000, according to BitInfoCharts.


Bitcoin Daily Transactions