Bitcoin was lumped in with other speculative investments during the run-up of the U.S. Federal Reserve’s last tightening cycle, slumping on expectations higher interest rates would damp the appetite for risk. Now with optimism growing again that borrowing costs could soon be heading lower, advocates of the biggest cryptocurrency are saying its more akin to high growth assets such as the shares of technology companies. 

The token has been trading as such as of late. The 90-day correlation coefficient of the digital currency and the tech-heavy Nasdaq 100 index reached 0.46 this week, the highest level since late August. A coefficient of 1 means the assets are moving in lockstep, while minus-1 would show they’re moving in opposite directions. After the Fed began raising its target rate on overnight loans between banks in early 2022, the correlation jumped to more than 0.8, the highest since the digital asset burst onto the mainstream consciousness. 

“People are refocused on crypto as a growth asset or an asset that represents network value,” said Joshua Lim, co-founder of trading firm Arbelos Markets. “The ability of it as a technology and transfer of value mechanism, and that means that it’s gonna be more correlated to other assets that are also pretty growthy like Nasdaq, tech equities, those sorts of things.”   

Bitcoin proponents have long touted the coin as an uncorrelated asset, one that’s not beholden to any governments and unlikely to be swayed by outside forces or factors. When first introduced to the world in 2008 by an anonymous person — or a group of people — known as Satoshi Nakamoto, the goal was to create a decentralized currency outside the control of governments and central banks. Over the years, it has been championed variously as a digital version of gold, an inflation hedge and a store of value. Bitcoin’s price volatility has undercut many of those narratives. The approval of U.S. exchange traded funds earlier this year to hold Bitcoin directly has opened the token up to new tier of investors. 

“Since the beginning of 2024, you’ve seen the S&P 500 and Bitcoin quite positively correlated, which is unusual and shatters that theory completely of it being a store of value,” said Toby Winterflood, chief product officer of CCData. “I really do think the main reason why we’re seeing it hit its highs at the moment is because of how the ETFs hit real maturity, being some of the fastest growing ETFs in history.”

Bitcoin surged after the ETFs went live in January, reaching a record of almost US$74,000 in March, before paring gains as demand for the investment vehicles began to cool. The token rose about 1.4 per cent on Friday to around $66,200, and is up almost 10 per cent this week. Bitcoin has jumped about 58 per cent this year, compared with an 11 per cent increase in the Nasdaq 100. 

“Those were a lot of motivators for traditional allocators outside of crypto to pay attention to the asset class and start buying into it,” Lim, said, referring to the U.S. ETFs, Bitcoin reaching its all-time high in March and its blockchain halving in April. “Now that those catalysts are behind us, there’s more focus on just the broader macro picture.”   

Data released Wednesday showed a measure of underlying U.S. inflation ebbed in April for the first time in six months, providing some progress in the direction Fed officials would like to see before reducing rates. The core consumer price index, which excludes food and energy costs, rose 0.3 per cent from March after three months of greater-than-expected readings. Still, several Fed officials noted Thursday that the central bank should keep borrowing costs high for longer as policymakers await more evidence inflation is easing, suggesting they’re not in a rush to cut rates.

“If the Fed lowers rates, I think generally speaking, that would be bullish for risk assets,” Lim said. “And so that would, it’d also be bullish for crypto.”

While more crypto investors have turned their attention back to the Fed, CCData found that Bitcoin has remained pretty steady in its growth and resiliency since the release of the U.S. ETFs, Winterflood said.   

“It’ll be interesting then to see what happens” if the Fed does cuts rates in the months ahead, Winterflood said. “I wonder if Bitcoin will behave in the same way as it did previously, being that kind of riskier-seen asset or whether it’ll start actually becoming just an alternative asset viewed by traditional markets.”