Bitcoin Is Proving To Be Less Volatile Than Stocks

November 6, 2022 6:02 pm Comments

After the Federal Reserve set the new interest rate last week, the financial markets once again reacted to the press release.

Ultimately, the Fed decided to raise rates by 75 basis points which will likely affect much of the traditional markets and the economy as a whole.

However, what many may find surprising now is that fact that digital assets like Bitcoin seem to have reacted to the rate decision less which is making it a less volatile asset class.

It was observed that an index like the S&P500 actually whipped up and down a lot more than Bitcoin which many claim to be too volatile.

With this new change in perception, it could potentially mark a new milestone as the crypto industry slowly starts to gain legitimacy for financial institutions.

CoinDesk reports:

He was then later asked about “lag effects” (aka the time between the Fed’s rate increases and its actual economic impact) and Powell dropped the bombshell about it being premature to talk about a rate-hike pause. The S&P 500 puked.

What’s more, the S&P 500 got whipped around even more than bitcoin (BTC) – you know, the famously volatile Magic Internet Money.

The Fed press release came out at 2 p.m. ET. The S&P 500’s gain peaked at 0.7% about a half hour later, but it ended the day down 2.3%. Meanwhile, bitcoin peaked at a post-Fed press release gain of 1.3% and ended with a 1.5% loss.

Volatility has a specific definition, and two weeks is hardly statistically significant, but this marks the second week in a row when bitcoin’s relative stability showed the stock market who The Adult in the room was.

So far, it seems that the Fed has continued to show efforts that indicate that it is persistent on trying to keep inflation down as there is a lot of economic uncertainty around the topic.

As a result, major indices have dropped while only Bitcoin rose which may show that there is starting to be a bit of uncorrelation.

Traditionally, the equities markets and the crypto markets would react the same way due to correlation but these are signs that things may be changing soon.

Now it seems like Bitcoin is already ignoring the existing uncertainty or perhaps it even benefits from it.

CoinDesk concludes:

In the last two weeks, we’ve seen the Fed signal a willingness to keep raising rates to get inflation down, a hot jobs report and general macroeconomic uncertainty. That pushed both the S&P 500 and the Nasdaq-100 (another U.S. stock market proxy) down. Meanwhile, bitcoin rose.

I know this could change easily overnight, but for the time being, it looks like bitcoin is shrugging off the uncertainty.

My colleague Glenn Williams Jr. put it best:

“The world turns but the asset often criticized for its volatility has not – or certainly not as much as leading equity indexes this year.”

My conclusion is one of two things: Either bitcoin has now truly arrived as a macro asset or value is meaningless again since dogecoin (DOGE), a cryptocurrency that was quite literally created as a joke, doubled in price in October.

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