Rising Correlation Between Crypto and S&P 500

The positive correlation between cryptocurrencies and the S&P 500 has risen to levels not seen since mid-2022. This data, sourced from Bloomberg, reveals a close relationship in price movements between the two markets. The report suggests that macroeconomic factors influencing U.S. stocks are significantly impacting the cryptocurrency sector as well.

Impact of Federal Reserve's Rate Cut

The increase in correlation comes in the wake of last week's Federal Reserve rate cut. Galaxy's Head of Liquid Active Strategies and Portfolio Manager, Chris Rhine, highlighted the consolidation in both risk assets and cryptocurrencies.

He noted that positive catalysts are outnumbering negative ones. Risk assets reacted positively to the Federal Reserve's recent 50 basis-point rate reduction. Digital asset prices also rose as anticipated due to the easing monetary policy.

"Optimism is building that Vice President Kamala Harris' stance on crypto will be more favorable than the Biden administration's policies, offering a more optimistic regulatory and legislative roadmap for the industry," Rhine said.

Political Developments as Catalysts

The narrative surrounding the upcoming U.S. presidential election has shifted toward becoming a more positive catalyst. Presidential candidate Kamala Harris pledged at a fundraiser over the weekend to support the growth of the crypto sector.

This development is complemented by Anthony Scaramucci and other crypto advocates collaborating on her campaign's crypto policies.

Potential for Bitcoin ETFs Approval

Rhine believes that more large wealth management platforms will approve Bitcoin ETFs in early Q4. This would further expand access to digital assets across the trillions of dollars of wealth managed by brokerage firms. The optimism surrounding these developments positions both markets favorably for an upward trend.

Conclusion

The increasing positive correlation suggests that macroeconomic factors, particularly following the Federal Reserve's rate cut, are significantly influencing both markets.

With positive catalysts outnumbering negative ones, and political support growing, the outlook for cryptocurrencies and the S&P 500 appears optimistic.