Cumberland, the world leader in crypto-assets, gave his impressions on the correlation between ethereum and the Nasdaq composite index. It would seem from his observations that this is affecting cryptocurrency traders.
Understanding the Correlation Between Ethereum (ETH) and the Nasdaq Composite
In stock markets, people invest their money in the reputation, the expected net profit rate and the future of the company. Stock indices consist of several stocks belonging to the same or similar field. The composite index Nasdaq is one such clue. It contains shares of the biggest technology companies. It is therefore a good indicator of the world of technology.
The growing demand and popularity of crypto-assets has pushed technology companies to adapt to virtual currencies. This creates correlations between cryptos and stock indices like the Nasdaq one. Correlation simply describes the relationship between two assets. That is, how much the prices of these two assets change over time. Concretely, the correlation coefficient can have values between -1 and 1, 1 meaning that the prices are perfectly correlated.
High Correlation: What Does It Mean for Traders?
Jonah Van Bourg, Global Head of Trading at cumberland, gives his impressions on the too strong correlation between ethereum (ETH) and the Nasdaq composite. Already, this specialist underlines the penchant of traders for negotiations in US dollars. Trading in bitcoin (BTC) and ethereum (ETH) pairs seems to be somewhat left behind. He then explains that the correlation between ethereum (ETH) and the Nasdaq composite is approaching the highs reached in May this year. Which, he says, affects crypto-native traders.
He continues, “The high correlation between Ether and the Nasdaq has made it harder for crypto-native traders to use their edge – a deep understanding of on-chain dynamics.” On Nasdaq, ETH/BTC is currently trading at lows, but is likely to rise. Jonah Van Bourg also notes that macroeconomic factors are expected to boost prices again this week as the US Federal Reserve prepares to announce its plan for the federal funds rate.
The high correlation between cryptocurrencies and the stock market surprised many in 2022. But based on historical data, it is very likely that in the long term the correlation will drop to lower levels. It is no surprise that year after year, experts consider cryptocurrencies to be a better tool for diversifying investment portfolios.
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