According to a Coinbase research report, the correlation between the cryptocurrency market and the stock market reached an all-time high in September 2024, reaching about 50 percent. This was largely due to loose monetary policies in the US and China.
Impact of Monetary Policy on the Crypto Market
The Fed's aggressive interest rate cuts played a significant role in fostering this correlation. After announcing a 50 basis point rate cut, Bitcoin prices soared above $64,000, followed by an increase in the value of crypto-related stocks, including Coinbase (COIN) and Microstrategy (MSTR) shares. Data show that measures to stimulate economic growth have a similarly positive effect on both stock and crypto markets, providing momentum for both asset types.
New Relationship between Stock and Crypto Markets
According to recent data, US stock futures markets moved in sync with crypto prices during this period. Many US stocks hit new highs along with the rise in Bitcoin's price. The 40-day correlation coefficient between the S&P 500 and the top 100 cryptocurrencies reached 0,67, nearing the 2022 all-time high of 0,72. This indicates a closer relationship between the two markets, with investors now evaluating risks in stock and crypto markets in a more similar manner.
Ethereum Dynamics Amid Overall Trend
Interestingly, during this period of high correlation, Ethereum outperformed Bitcoin. Recent data show Ethereum rose by 8 percent compared to Bitcoin a week after the Fed's rate cut announcement. Even in the past week, Ethereum continued to perform better with a 6,08 percent rise compared to Bitcoin's 4,77 percent increase. However, there is still negative sentiment towards Ethereum, especially related to the recent sale of 100 ETH by the Ethereum Foundation, which sold more than 3.500 ETH throughout this year. This move raises concerns about its impact on market sentiment and project developments on the Ethereum network.
Beyond Bitcoin and Ethereum, other cryptocurrency sectors have also shown impressive performance. Interest in altcoins is rising, with coins like Shiba Inu and PEPE experiencing significant price surges. The gaming sector, Layer-0 solutions, and scaling solutions have recorded the best performance, with increases of 9 percent, 17 percent, and 11 percent respectively over the past week. As the crypto market matures, it becomes more sensitive to macroeconomic conditions. In the past, the crypto market tended to move independently from traditional financial markets. However, with the increasing participation of institutional investors, crypto price movements are now more influenced by global economic factors such as interest rate decisions and monetary policies. Heading into October, the crypto market faces typically favorable conditions. Over the past 10 years, Bitcoin has recorded price increases in 8 out of 10 October months. This raises expectations that the positive correlation between stock and crypto markets will continue, offering investors opportunities for profit.
