(Bloomberg) — The correlation between Bitcoin and a gauge of U.S. technology stocks has hit a two-year high, indicating that the equity market's reaction to U.S. inflation data due later on Wednesday could set the mood for digital tickets.
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The 30-day correlation coefficient for the largest cryptocurrency and the Nasdaq 100 Index is around 0.70, data compiled by Bloomberg shows. A reading of 1 indicates that assets are moving in lockstep, while minus 1 indicates an inverse tie.
The inflation report is expected to show firm pressure on prices just as markets worry about the Federal Reserve's scope for further interest rate cuts amid a robust US economy and uncertainty about the impact of Donald Trump's agenda.
Bond yields and the dollar have risen against that backdrop, while stocks and crypto 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's inauguration
President-elect Trump will be sworn in on January 20 and may unleash a policy blitz. Speculators are weighing the risk of inflationary tariff and immigration policies against his promise to make the US the global home of crypto.
“Overall sensitivity to interest rates over the past month suggests the increased importance of Wednesday's CPI print,” K33 Research analysts Vetle Lunde and David Zimmerman wrote in a note. “Additionally, Trump's signature momentum may still be building in the days leading up to the inauguration.”
Hedging activity is increasing in the options market, indicating that investors are in a position to increase volatility, according to trading platform Derive.xyz.
The share of bearish bets has climbed, pointing to a “war against potential downside risks as we approach the inauguration,” Derive.xyz Head of Research Sean Dawson said.
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