Report: Decreasing Bitcoin Price Correlation Coefficient with ETF Flows. What does it mean?

JPMorgan report indicates deteriorating relations between... Bitcoin price BTC The funds go into exchange-traded funds (ETFs), which directly track the price of the digital currency.

In a note to bank clients sent out on Thursday, the bank said the correlation coefficient between the two financial assets fell to 0.60 on Wednesday. Compared to 0.78 on February 7 and 0.84 on January 31.

ANDCorrelation coefficient It is a statistic used to measure the linear relationship between two variables. Possible values ​​for the correlation coefficient range from -1 to 1. A value of 1 means a perfect positive correlation, in which the two variables always move in the same direction. A value of -1 means a perfect negative correlation because the two variables always move in the opposite direction. A value of 0 means there is no correlation between the two variables.

A correlation coefficient greater than 0.70 is considered to indicate a strong correlation, while a correlation coefficient slightly lower is considered a “moderate correlation.”

In the context of the correlation between Bitcoin prices and financial flows, take a look at the Bitcoin ETF. The correlation coefficient dropped from 0.78 to 0.60, meaning there is a relationship between Bitcoin price movements and the flow of money in and out of Bitcoin exchange-traded funds (ETFs). It has become less interconnected than before.

In other words, the impact of cash flows on Bitcoin prices or vice versa has become less clear.

This could indicate that other factors are starting to play a larger role in determining Bitcoin's price. Or investors in a Bitcoin ETF are influenced by other indirect information or variables related to the price of Bitcoin itself.

Saw it last week Standard Streams The ETF's volume was $2.4 billion, the largest amount invested to date.

BlackRock's IBIT fund and Fidelity's FBTC were the largest beneficiaries of these funds. Together they have already raised nearly $11 billion.

Fund flows now appear to be tracking the price of the currency, as a significant rise in Bitcoin's price in early February led to increased investment in ETFs. But price stability in recent days may be the reason for the decrease in the intensity of cash flows.

Retail investors are the main driver of the Bitcoin and cryptocurrency rally in February.

The bank's report also said that individual investors were likely behind the strong rally in the digital currency market in February.

And a rose Bitcoin price BTCthe world's largest digital currency, up 30% in the last 30 days.

The bank's analysts said the return of the "individual motive" comes in anticipation of three major catalysts in the digital currency market in the coming months: "Bitcoin halving, Ethereum's next big network upgrade. and the Exchange Commission (SEC) approves private ETFs. Ethereum in May."

The first two of these three catalysts are largely included in prices, the report said. So far the bank sees only a 50% probability of a third catalyst.

This motivation of individuals can be seen in the aggregate Bitcoin flows on the blockchain, the report said. However, there were larger inflows from smaller portfolios, which is considered an indicator of the participation of retail investors.

The bank noted that in the fourth quarter of 2023, retail-focused trading platforms such as Block, PayPal and Robinhood saw an increase in trading activity and investor influx.

And I witnessed Digital currency trading platform Coinbase The same period also saw an increase in trading activity by individual investors.

The bank stated that the share Artificial Intelligence Coins (AI) and meme coins in the overall cryptocurrency market rose again in February, another indicator of increased retail investor activity.