Bitcoin (BTC) Price Correlation to Nasdaq Drops to 51%, Relationship Is Strongest when NASDAQ Is Down Big: Report

The research team at BitOoda has provided an update on Bitcoin and broader public markets. As of February 15, 2022, $291 million in YTD fund outflows have taken place along with an inverted term structure of BTC volatility now “at 11% realized less implied.”

As noted by BitOoda, the report looks at Bitcoin vs broader markets, the public miners, institutional fund flows, as well as CME Futures.

As mentioned in the update, the correlation of Bitcoin to the Nasdaq “is ~52%, dropping slightly from last week.” As BitOoda had noted, “a large down day in the Nasdaq is a strong predictor of large Bitcoin price declines.”

The researchers added that they “do not expect the relationship to stay uncorrelated when investors need it to be uncorrelated.” This is consistent with their view that Bitcoin “is still a risk-on asset, notwithstanding the prevalent inflation hedge / digital gold / uncorrelated asset narratives in the space. It can get there, but it is not there yet.”

BTC drawdowns are “deep and prolonged,” the report added while pointing out that Bitcoin is only “rarely within 20% of all time highs since 2014.” In the same period, the S&P and Nasdaq “have had only two short-lived bear markets.”

As covered, the 18 publicly listed mining stocks “trade at an average adjusted Enterprise Value per YE 2022 PH/s of planned capacity of $150k, down $10k since last week. Adjusted EV = Market Cap + Debt — Cash — Market Value of Crypto Holdings.”

Technically, pending capital expenditures “needed to pay for future deliveries of announced rig purchases and ancillary equipment should be added back, but the lack of data led BitOoda to exclude this adjustment for consistency.”

Notably, miners like Hive that have relatively modest expansion plans, or Greenidge and Riot that have “low power and operating costs, trade at a premium to the group.”

The BitOoda team also looked at financials based on Bloomberg analyst consensus, finding that the companies that “do have estimates trade at 3.5x 2022E EBITDA and 7.5x 2022E Contribution (Gross Profit + Depreciation).”

Considering their 327EH/s year end network Hashrate estimate, the researchers are now suspecting that consensus EBITDA estimates “may need downward revisions unless Bitcoin price accelerates to new highs.” The multiples now look “reasonably accommodative of a downward EBITDA recalibration.”

BitOoda’s new institutional fund flow section “covers 19 funds with $28B of AUM. GBTC, an ETP, is 75%+ of the group, and has seen no inflows recently.” The others are “mostly crypto-exposed equity ETFs with a broader innovation focus — ProShares BITO Bitcoin futures fund excepted.”

Over the past year, funds have seen “a $587mm in net inflows (slide 19), with BITO (+1.7B and BLOK (+675mm) and Others (+941mm) offsetting $2.7B redemptions for ARKW (slide 20). Year-to-date, ARKW had $411mm redemptions, though inflows elsewhere helped the category see just $291mm in outflows.”

As mentioned in the update from the research firm:

“Realized volatility of 69.5% is now 11% above implied volatility. While we expect these occasional inversions to occur in the depths of a selloff, the disconnect between a somewhat illiquid, regulated US institutional asset (CME Futures) and a global, liquid, largely retail driven asset (Bitcoin) suggests these inversions are reactive in nature rather than, as yet, predictive of price turning points.”

The report also mentioned that the futures curve is flat through April, “and then in backwardation — but with no liquidity.” Non-commercial net length “declined to 189 lots, with Other Reportables shifting to a 288 lot net short position per the 2/8 Commitment of Traders report, vs. 620-lot net long position on 2/1 (slide 27).”

Main highlights from the update are as follows:

  • Bitcoin’s correlation to the Nasdaq dipped to 51%; the relationship is strongest when the Nasdaq is down a lot
  • On BitOoda’s preferred adjusted EV per PH/s metric, the miners trade at an average of $150k, down $10k from last week
  • Their YE network Hashrate estimate of 327 EH/s implies that either BTC price needs to accelerate, or that consensus EBITDA estimates need to be recalibrated down — but a modest 3.5x Adj EV / EBITDA multiple should be accommodative
  • During the last year, funds have seen $587mm in flows, but $291mm in outflows year-to-date, led largely by ARKW (outflows of $2.7B over 12 months / $411mm YTD
  • Implied volatility (100% moneyness for the active contract) is now 11% below realized 30-day volatility, although we don’t view it as predictive of price turning points
  • Overall non-commercial net length on the CME fell to 189 lots, while Other Reportable investors swung from a 620 lot long to a 288 lot net short position
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