(Bloomberg) — The correlation between Bitcoin and a gauge of U.S. technology stocks has hit a two-year high, indicating the stock market’s reaction to U.S. inflation data that to be published later on Wednesday may set the tone for digital tokens.
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The 30-day correlation coefficient for the largest cryptocurrency and the Nasdaq 100 index is about 0.70, data compiled by Bloomberg shows. A reading of 1 indicates that the assets are moving at the same time, while minus 1 indicates a reverse tie.
The inflation report is expected to show strong price pressures just as markets worry about the Federal Reserve’s room to make further interest rate cuts amid a robust US economy and uncertainty over the impact of the Donald Trump’s agenda.
Against that backdrop, bond yields and the dollar have risen, while stocks and cryptocurrencies have been under pressure. Bitcoin changed hands at $97,000 at 6 a.m. Wednesday in London, about $11,300 below last month’s all-time high.
Trump inauguration
President-elect Trump will be sworn in on January 20 and could unleash a political bombardment. Speculators are weighing the risk of inflationary immigration policies and tariffs against their promise to make the United States the global home of cryptocurrencies.
“The overall sensitivity to interest rates over the past month suggests greater significance to Wednesday’s CPI figure,” K33 Research analysts Vetle Lunde and David Zimmerman wrote in a note. “In addition, a notable Trump push may still be building in the days leading up to the inauguration.”
Hedging activity is picking up in the options market, indicating investors are positioning for higher volatility, according to trading platform Derive.xyz.
The proportion of bearish bets has increased, which aims to “protect against potential downside risks as we get closer to the inauguration,” said Derive.xyz head of research Sean Dawson.
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