After trading in tandem with the Nasdaq index for several years, Bitcoin (BTC) has shown signs of decoupling from its correlation with Wall Street’s tech-heavy equity index amid growing optimism that the U.S. Securities and Exchange Commission (SEC) will approve a spot Bitcoin exchange-traded fund (ETF).
Nasdaq Correlation Hits Zero
Data shows that the 40-day correlation between BTC and the Nasdaq Composite (NDX) has dropped to zero, indicating that Bitcoin is no longer moving in sync with the tech stock index. Prior to this decoupling, Bitcoin and Nasdaq maintained a strong positive correlation of around 0.8 during most of the bear market in 2022.
TheBlock tracks this correlation data on a daily basis.
Potential U.S. Spot ETF Approval
The decoupling is attributed to growing optimism that the SEC will approve a spot Bitcoin ETF in the U.S., which could lead to wider institutional adoption of cryptocurrency. The SEC is expected to make decisions on nearly a dozen spot ETF applications by January 10.
Fairlead Strategies leader Katie Stockton anticipates that Bitcoin will remain independent from Nasdaq in the coming months. As of this report, Bitcoin’s price has surged over 20% to reach above $47,000 for the first time since April 2022.
Bloomberg analysts assign over a 90% probability that the SEC will approve at least one spot Bitcoin ETF, with only a 5% chance of rejecting all proposals. Bloomberg ETF analyst Eric Balchunas stated " I assign only a 5% chance of total rejection, leaving a slight possibility for denial.“
BTC as a Portfolio Diversification Tool
With the breakdown in correlation, some analysts expect Bitcoin to act as a diversification tool in investment portfolios, providing benefits from exposure to an alternative asset class with low correlation to traditional stocks and bonds.