The broader crypto market has recovered with Bitcoin rallying back to $31k and Ethereum testing the $2k resistance.
The crypto market has seen a rare comeback after nine straight red weeks for Bitcoin.
Juan Pellicer, Analyst at Into The Block, believes the green could be rooted in the current rally in the equity markets.
“I think the recent BTC price action is heavily influenced by the US market rally. SP is so far up almost 10% from last week’s low, so there may be part of the market that believes that after the recent strong correction, we will have a quick recovery.”
The correlation between Bitcoin and the stock market dropped last week as the S&P recorded a 6.94% gain while Bitcoin ended the week down 8.9%.
Unlike traditional markets, the crypto industry is open 24/7, and Bitcoin was up 3% over the weekend.
However, when the market opened on Monday morning, Bitcoin started to rise along with the rally in equities.
Bitcoin has been correlated with major tech stocks during a time when the global market was weak.
Pellicer is optimistic that the market is ready for a “V-shaped” recovery, with Bitcoin down more than 50% from its high and many altcoins down more than 70%.
Cryptocurrencies have been trading more like tech stocks than a standalone asset class and as a hedge against inflation.
War in Ukraine, rising inflation, food shortages, and rising interest rates have also added to the negative sentiment for crypto investors. The current Fear and Greed Index shows that we are close to peaking fear at 10.
It should be noted that the strength of the dollar is also a factor affecting cryptocurrencies. When the dollar weakens, the value of the cryptocurrency will essentially increase.
The chart below shows the divergence of DXY and Bitcoin. Since 2021, when the DXY increased, the Bitcoin price has shown a negative correlation.