Bitcoin takes over from tech stocks as markets await US CPI test

(Bloomberg) — The correlation between Bitcoin and a gauge of U.S. technology stocks has hit a two-year high, indicating that the stock market’s reaction to upcoming U.S. inflation data later Wednesday can set the tone for the digital chips.

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A 30-day correlation coefficient for the largest cryptocurrency and the Nasdaq 100 index is about 0.70, data compiled by Bloomberg show. A reading of 1 indicates that assets are moving in a blocking move, while minus 1 indicates a reverse draw.

The inflation report is expected to show strong price pressures as markets worry about the Federal Reserve’s scope for further interest rate cuts amid a robust US economy and uncertainty about the impact of Donald Trump’s agenda.

Bond yields and the dollar have risen against this backdrop, while stocks and crypto have come under pressure. Bitcoin changed hands at $97,000 at 6 a.m. Wednesday in London, roughly $11,300 below last month’s record high.

Inauguration of Trump

President-elect Trump will be sworn in on January 20 and may unleash a political firestorm. Speculators are weighing the risk of inflationary tariffs and immigration policies against his promise to make the US the global home of crypto.

“The overall sensitivity to interest rates over the past month suggests greater significance for Wednesday’s CPI print,” K33 Research analysts Vetle Lunde and David Zimmerman wrote in a note. “Furthermore, a notable Trump push could still occur in the days leading up to the inauguration.”

Hedging activity is increasing in the options market, indicating that investors are positioning for increased volatility, according to trading platform Derive.xyz.

The share of bearish bets has increased, aiming to “hedge against potential downside risks as we approach the opening,” said Derive.xyz head of research Sean Dawson.