Regardless of whether Bitcoin is going up or down, by now it has been made clearly evident that the first official mainstream blockchain-based digital currency has actual, real significance and implications within the greater global financial markets. Last week the value of BTC rose beyond the 10% mark to almost $24,000 per Bitcoin, as the Federal Reserve chairman Jerome Powell released news of heightened interest rates to combat rising inflation.
Bitcoin recently closed its worst documented quarter since 2011, this past second financial quarter. Despite this, BTC value still remained above levels which many experts predicted the digital coin could fall to as whispers of a recession still loom. Bitcoin is only one of the several digital currencies to suffer during the recent market challenges.
How Bitcoin Seems To Correlate To The Rest Of The Market
While Bitcoin has certainly endured challenging levels, down over 50% from an all-time high of over $65,000 reached in February, April and November of 2021, it has done so in a pattern which closely resembles broader market sentiment. The entire cryptocurrency market capitalization is tremendously lower than what it was not even a year ago. The total crypto market value is climbing back up towards the $1 Trillion dollar mark, while it reached over $3 trillion just about nine months ago.
Since the Federal Reserve’s most recent announcement this week, the crypto market climbed another 3% in spite of the Fed’s decision to raise inflation rates by .75% on Wednesday the 27th. Bitcoin, being the largest digital asset by market capitalization, typically accounts for almost half of the crypto market. The way this fluctuates is often closely followed by traders and investors, to gather market sentiment and what may be likely next.
BTC Dominance For Crypto And Larger Financial Market Clarity
Bitcoin dominance has been a long metric which seasoned crypto traders and investors look into for a degree of clarity into the market and what one might anticipate. Generally, as Bitcoin dominance increases, that is the percentage of Bitcoin versus all altcoins goes up, it has often been believed that the market was pulling back, and liquidity believed to be leaving the crypto market for placement into less volatile assets like stablecoins, and even cashed out to fiat currencies. The opposite has been the sentiment when Bitcoin dominance decreases. Such seasons have been dubbed “altcoin season”, when liquidity is entering the market through stablecoins, BTC and other established ecosystems, in order to go towards newer cryptocurrency projects.
While this is helpful in attempting to understand the market movement, and what may be going on in crypto specifically, it turns out that there may exist even more correlations, mostly between BTC, crypto, and other markets like the stock market.
How Bitcoin Connects With Others
Just as in the case of the Federal Reserve announcements and the impact seen and felt in the Bitcoin and various digital currency ecosystems, the stock market and other financial markets also respond in a similar way. For the last several cycles, when overall market sentiment is positive, influx of liquidity into the stock market is often seen as a response. This sentiment seems to be carried out from the larger stock market, as reflected from the Foreign Exchange market, and then seemingly trickles down to the more volatile Bitcoin ecosystem.
Such documented correlations help to understand the logic which entities such as El Salvador share, believing BTC to be only in the early stages of becoming a fully developed asset class and market. This is why several private and public entities are routinely risking a significant portion of available funds to the developing digital asset, with belief that it is in its infancy stages, simultaneously hoping that BTC is destined for significant upside still.
