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Recently, the cryptocurrency market has shown a high correlation with U.S. stocks, a dynamic shift closely monitored by investors and analysts. Especially after the Federal Reserve’s interest rate cuts, the relationship between crypto assets and stocks has become increasingly apparent. According to the latest report published by Bloomberg, the correlation between the top 100 cryptocurrencies and the U.S. S&P 500 index has risen to 0.67, reaching its highest level since 2022.
Impact of Federal Reserve Interest Rate Decisions on the Crypto Market
The Federal Reserve (FED) made a 50 basis point interest rate cut last week, which had a wide impact on the markets. This decision led to upward price movements in many investment vehicles, particularly crypto assets. Bitcoin and other leading cryptocurrencies entered an upward trend as investors’ risk appetite increased. However, what stood out was the rising positive correlation between the stock markets and cryptocurrencies.
David Lawant, Head of Research at FalconX, noted that this close relationship between crypto assets and stocks could strengthen further as inflation decreases and the FED’s low-interest-rate cycle continues. According to Lawant, this process creates a new macroeconomic environment for the crypto market, and the likelihood of a crypto bull market increases as the FED continues with interest rate cuts.
Macroeconomic Effects on Stocks and Cryptocurrencies
The sensitivity of U.S. stocks, especially growth-focused sectors like technology, to macroeconomic developments has long been known. However, the close correlation between cryptocurrencies and stocks is also an indication of how globally interconnected the markets have become. According to analysts, the volatility in stocks is now significantly affecting crypto assets as well.
What Do Experts Expect for the Future?
This new dynamic in global markets could become even more complex, especially as the U.S. presidential elections approach. Analysts suggest that election results could have a strong impact on the crypto market. Particularly, the potential for a more crypto-friendly administration and a more favorable regulatory framework could increase the risk appetite for crypto assets.
On the other hand, the broader acceptance and liquidity provided by Bitcoin ETFs are among the factors that will support wider institutional adoption of crypto assets. This could contribute to the maturation of the crypto market and a slight reduction in volatility. However, the continued high correlation suggests that the volatility in the crypto market will remain dependent on stock markets and macroeconomic developments.
The correlation between cryptocurrencies and U.S. stocks continues to rise in parallel with global macroeconomic developments. Factors such as the FED’s interest rate cuts and inflation data have brought these two markets even closer together. According to experts, while this rising correlation indicates that crypto markets are being adopted by a broader investor base, it also means they are becoming more sensitive to external factors.
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