Crypto and Stocks Look Increasingly Correlated. That Has Raised Risk Fears.

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Bitcoin rebounded last week in an increasingly familiar trend with stocks and other riskier assets: Bitcoin and stocks are tagging along with each other. For example, on Wednesday, bitcoin traded around $43,500, up 4.6% in 24 hours. Ether, the second largest token, was at odds with the broader crypto market. Equities also rose after Tuesday’s gains, with the S&P 500 index rising 0.28%.

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As the International Monetary Fund warned in a blog post, sentiment in equities and crypto appears to be increasingly linked, raising the “risk of transition to financial markets.” The IMF said the correlation of bitcoin to the S&P 500 was just 0.01 from 2017 to 2019, suggesting that equities and crypto prices were moving independently. (Assets moving in total lockstep have a value of 1; those with no value correlation, 0.) This changed in 2020-21, as central banks flooded the markets with liquidity and the correlation rose to 0.36, indicating That asset class was moving closer. Together.

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Bitcoin appears to be similarly tied to emerging markets, with a 0.34 correlation with the MSCI Emerging Markets Index in 2020 and 2021, up 17 times from previous years. Crypto is now more closely tied to gold, investment-grade bonds and stocks than major currencies, meaning its diversification benefits have largely disappeared.

The message from the IMF is that bitcoin and the broader crypto world are unlikely to provide protection against a fall in stocks. The volatility of crypto is also spreading across equity markets, and vice versa, meaning that “sentiment in one market is transmitted in a non-trivial way to another.” The IMF sees this as a risk to financial stability, especially in markets where crypto is taking off.

next week
Monday 1/17
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US stock And fixed-income markets are closed for Martin Luther King Jr. Day.

Tuesday 1/18

Bank of New York Mellon,

Charles Schwab,

Goldman Sachs Group,

JB Hunt Transportation Services,

PNC Financial Services Group,
and Truist financial reports quarterly results.

bank of japan
announced its monetary policy decision. The central bank is widely expected to keep its key short-term interest at negative 0.1%. The BoJ and the European Central Bank are following a global trend and have said they do not plan to raise interest rates this year, even with the Federal Reserve raising the federal-funds rate by one percent in 2022. is expected to increase.

National Association Home builders released their housing market index for January. The consensus estimate is for 83 readings, which is slightly lower than in December. The index is down from its record high of 90 since November 2020, but remains historically high, as builders remain bullish on the housing market.

federal Reserve The Bank of New York released its Empire State Manufacturing Survey for January. It is expected to read 19.5, which is about 12 points lower than the December figures. The index is at its peak since last summer, but manufacturing activity in the region remains strong.

Wednesday 1/19

census Bureau Reports new residential construction data for December. Economists estimate a seasonally adjusted annual rate of 1.65 million housing starts and 1.71 million building permits.

ASML Holding,

Bank of America,

citizen financial group,

comerica,

search for financial services,

Tie,

Morgan Stanley,

Procter & Gamble,
Prologis, State Street,

United Airlines Holdings,

UnitedHealth Group,
and US Bancorp release earnings.

Thursday 1/20

American Airlines Group,

Baker Hughes,

csx,

fifth third bancorp,

spontaneous surgery,

keycorp,

Netflix,

Northern Trust,

PPG Industries,

sector financial,
SVB Financial Group, Travelers and Union Pacific announced quarterly results.

National Association Realtors’ current home sales report for December. Economists forecast a seasonally adjusted annual rate of 6.39 million existing households, slightly lower than in November. The average current home sold for a record $353,900 in November, up 13.9% year over year.

Friday 1/21

Huntington Bankshare and Schlumberger will hold a conference call to discuss earnings.

conference board releases its major economic index for December. The consensus estimate is for a 0.8% monthly increase after a 1.1% increase in November. The Conference Board currently forecasts growth rates of 6% for fourth quarter 2021 GDP and 3.5% for 2022.

Write Daren Fonda at [email protected]

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