Bitcoin (BTC-USD) found itself grouped with other speculative investments during the run-up of the Federal Reserve’s last tightening cycle, declining on expectations that higher interest rates would dampen the risk appetite. Now, with optimism growing again that borrowing costs could soon be heading lower, proponents of the biggest cryptocurrency argue that it’s more akin to high-growth assets such as shares of technology companies.

The token has been trading as such recently. The 90-day correlation coefficient of the digital currency and the tech-heavy Nasdaq 100 index reached 0.46 this week, marking the highest level since late August. A coefficient of 1 indicates the assets are moving in lockstep, while minus 1 would show they’re moving in opposite directions. After the Fed began raising its target rate on overnight loans between banks in early 2022, the correlation jumped to more than 0.8, the highest since the digital asset burst onto the mainstream consciousness.

Joshua Lim, co-founder of trading firm Arbelos Markets, remarked that individuals are redirecting their attention towards cryptocurrency as a growth asset or an asset that embodies network value. He elaborated that its capacity as a technology and means of transferring value implies that it will exhibit a stronger correlation with other assets that are also characterized by growth, such as the Nasdaq and technology equities.

Bitcoin proponents have persistently promoted the coin as an uncorrelated asset, one liberated from governmental influence and resistant to external pressures or influences. Introduced to the public in 2008 by an individual or group known as Satoshi Nakamoto, Bitcoin was conceived to establish a decentralized currency independent of governmental and central bank control. Throughout its evolution, it has been heralded as a digital equivalent to gold, an inflation hedge, and a repository of value. However, the price volatility of Bitcoin has undermined several of these narratives. The approval of US exchange-traded funds earlier this year to hold Bitcoin directly has opened the token up to a new tier of investors.

Lim highlighted that various factors, such as the introduction of US ETFs, Bitcoin’s record-breaking surge in March, and its blockchain halving in April, served as significant incentives for traditional investors to take notice of the cryptocurrency asset class and begin investing in it. However, with these catalysts now in the past, attention has shifted more towards the broader macroeconomic landscape.

Bitcoin surged after the ETFs went live in January, reaching a record of almost $74,000 in March, before paring gains as demand for the investment vehicles began to cool. The token rose about 1.4% on Friday to around $66,200 and is up almost 10% this week. Bitcoin has jumped about 58% this year, compared with an 11% increase in the Nasdaq 100.

Lim highlighted that various factors, such as the introduction of US ETFs, Bitcoin’s record-breaking surge in March, and its blockchain halving in April, served as significant incentives for traditional investors to take notice of the cryptocurrency asset class and begin investing in it. However, with these catalysts now in the past, attention has shifted more towards the broader macroeconomic landscape.

Wednesday’s data release indicated a moderation in underlying US inflation during April, marking the first decline in six months. This development aligns with the direction desired by Federal Reserve officials before considering rate reductions. Specifically, the core consumer price index, which excludes volatile food and energy costs, increased by 0.3% from March, following three consecutive months of readings that exceeded expectations. 

Despite this, several Federal Reserve officials emphasized on Thursday the importance of maintaining higher borrowing costs for an extended period while awaiting further evidence of inflation easing. This stance suggests that they are not inclined to hastily reduce rates.

Lim expressed the view that if the Fed were to decrease rates, it would generally have a positive impact on risk assets. They added that such a scenario would also be favorable for cryptocurrencies.

CCData observed that despite increased focus on the Federal Reserve among crypto investors, Bitcoin has demonstrated consistent growth and resilience since the launch of US ETFs, according to Winterflood.

Winterflood remarked that it would be intriguing to observe the consequences if the Fed indeed reduces rates in the upcoming months. They pondered whether Bitcoin might replicate its past behavior as a perceived riskier asset, or if it would transition into merely an alternative asset embraced by conventional markets.

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Bank of America (NYSE:BAC) has revised its rating on Coinbase (NASDAQ:COIN) from underperform to neutral, with a raised price target of $217, up from $110.

According to the bank’s report, the current macroeconomic environment has fostered growth in crypto market capitalization and trading volumes.

While the bank acknowledges positive dynamics, it also highlights risks associated with Coinbase, including its reliance on transaction revenue and the ongoing SEC lawsuit.

Coinbase shares saw a 2.5% increase in pre-market trading on Friday following the upgrade. The stock, trading around $204 at the time of publication, has benefited from Bank of America’s revised outlook.

Bank of America’s analysts, led by Mark McLaughlin, emphasized several factors contributing to the upgrade, including Coinbase’s expense management and diversification efforts, which are expected to bolster earnings.

However, the analysts cautioned that certain risks, such as Coinbase’s dependence on transaction revenue and regulatory uncertainties related to the SEC lawsuit, could limit the stock’s potential upside.

The recent decline in Coinbase shares, over 9% following reports of potential competition from the Chicago Mercantile Exchange  in spot bitcoin trading, underscores the volatility and competitive landscape facing Coinbase and similar exchanges.

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The memecoin market has surged, with its market cap reaching $58 billion and posting a 10% gain in the last 24 hours, outpacing the broader cryptocurrency market, which saw a 5.5% increase over the same period.

The top five memecoins, comprising around 77% of the total market cap, have seen significant gains. Notably, Shiba Inu recorded a rally of over 7% in the past 24 hours and 12% over the past week. Other major memecoins, such as dogecoin, pepe, and floki, have also experienced notable increases.

Wintermute analysts attribute the surge to “fast money,” with a focus on memecoins like $PEPE, $BONK, $FLOKI, and others. However, popular trader DonAlt warned of potential losses for memecoins, cautioning against heavy investments in a dog or cat-themed coins.

While debate ensues regarding the future of memecoins, the wider cryptocurrency market rallied following a softer inflation print. Bitcoin prices increased by about 2.5% after April CPI data came in lower than expected. Investors view this as a bullish sign, marking a potential regime shift after the U.S. Federal Reserve announced its intention to taper its quantitative tightening.

Despite the positive sentiment, analysts emphasize that inflation remains above 3%, and recent Producer Price Index data showed a third consecutive monthly increase. The market awaits further guidance from the Fed regarding its response to the inflation data.

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Analysts suggest that Bitcoin derivatives traders are willing to pay a premium for short-term downside protection, despite a more optimistic outlook for longer-term options distributions.

CF Benchmarks’ analysis of Chicago Mercantile Exchange (CME) options on bitcoin futures reveals that investors continue to pay elevated premiums for out-of-the-money (OTM) puts, indicating a bearish sentiment in the short term. This trend persists even after a softer U.S. Consumer Price Index (CPI) inflation report.

The analysts highlight a “flatter” volatility curve for longer-dated options, with a slight skew towards calls. This suggests a more positive outlook for Bitcoin’s longer-term prospects. They note that increased institutional involvement may contribute to this trend, as institutional investors tend to exhibit less extreme swings in sentiment.

Options, which provide traders with the right but not the obligation to buy or sell an underlying asset at a predetermined price, are being closely monitored for indications of market sentiment. While call options imply a bullish stance, put options suggest a bearish sentiment.

In related news, the Financial Times reports that the CME Group is considering launching bitcoin spot trading alongside its existing futures products. This move would cater to traders seeking regulated platforms for cryptocurrency transactions and could enable profit opportunities through basis trades, leveraging the difference between futures prices and spot prices.

While the launch of bitcoin spot trading on CME has not been finalized, it underscores the growing interest in regulated cryptocurrency trading platforms. CME Group, already a major player in bitcoin futures trading, declined to comment on the potential expansion.

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Shares of Coinbase (NASDAQ:COIN) fell nearly 8% on Thursday, dropping to $202.49, following a Financial Times report that the Chicago Mercantile Exchange (NASDAQ:CME) might soon offer spot bitcoin trading amid strong interest from its clients.

Cryptocurrencies were up on the day, with the CoinDesk 20 Index, which tracks 20 of the largest digital tokens by market capitalization, rising 0.91% over the past 24 hours. Bitcoin was up by half a percent, benefiting from Wednesday’s better-than-expected inflation report. Despite the drop, COIN is up 29% year-to-date, buoyed by the rally in crypto prices since the beginning of the year.

Chicago-based CME, the world’s largest futures exchange, has a history spanning more than a century and is a financial powerhouse. Until now, Coinbase has profited from being the most trusted crypto exchange in the U.S., but this advantage could be challenged if CME enters the spot bitcoin trading market.

Designated by U.S. regulators as a “systemically important financial market utility,” CME is subject to stricter supervision. Many investors believe this designation implies the government would prevent CME from failing in a financial crisis. CME is already the leading bitcoin futures exchange in the U.S. by open interest.

The exchange has been in discussions with traders interested in trading bitcoin on a regulated marketplace, sources familiar with the matter told the Financial Times. A significant barrier for traders in dealing with digital assets is the lack of trust in crypto exchanges, particularly after several high-profile failures, including the collapse of the once-popular crypto exchange FTX.

The recent launch of spot bitcoin exchange-traded funds has provided traders with a safer way to invest in bitcoin, with over 500 institutions allocating more than $10 billion to these funds within the first three months. An additional $40 billion came from retail traders.

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