Bitcoin Is Rising and Crushing Stocks. Crypto Traders Are Still Preparing for the Worst.

BitcoinBTCUSD –1.98%  and other cryptocurrencies were rallying on Friday as digital assets continued a recent outperformance of stocks, though there are signs in the derivatives market that crypto traders are preparing for a move downward.

The price of Bitcoin rose 4% over the past 24 hours to around $30,500. The largest crypto was still trading around the lowest point all year, but comfortably higher than recent levels below $30,000 and well above near $26,000 low reached in last week’s cryptocurrency crash.

“Bitcoin is hovering around the $30,000 level as investors continue to shy away from stocks,” wrote Edward Moya, an analyst at broker Oanda. “A weaker dollar and bear market stock fears are making Bitcoin attractive again.”

Bitcoin and its peers should theoretically trade independently of mainstream financial markets, but have largely shown themselves to be correlated with other risk-sensitive assets—like stocks, and especially tech stocks—over the past year. Some of that correlation has recently faded, with Bitcoin actually outperforming stock indexes like the S&P 500SPX –2.27%  and tech-heavy NasdaqCOMP –3.75%  this week.

The leading digital asset has gained almost 10% since Monday, when it changed hands around $29,500. By comparison, based on stock-index futures indicating the U.S. market open on Friday, the S&P 500 has lost 2% this week while the Nasdaq-100 is down 3%.

Stocks are in a rough patch, with the Nasdaq remaining deep in bear market territory—down 28% this year—and the S&P 500 flirting with a bear market.

“Bitcoin looks poised to consolidate [around $30,000], but bulls should be happy to see prices are not mimicking what happens with the stock market,” Moya wrote.

Bitcoin is trading at its lowest levels since July 2021, and remains at less than half its all-time high near $69,000 reached in November. By comparison, the S&P 500 closed on Thursday at its lowest level since March 2021.

The leading digital asset is recovering ever-so slowly from its recent crash, which was largely linked to spillover from a stock market selloff and fueled by the collapse of a systemically-important stablecoin meant to be pegged to the U.S. dollar.

“It seems the fallout from all the stablecoin drama that sent cryptos sharply lower is finally fading,” wrote Moya.

That stablecoin, TerraUSDUSTUSD –6.41% , continued to trade at a severe discount to the dollar—7 cents. Luna, a related token that through an arbitrage market mechanism is meant to keep Terra on its peg, was changing hands at one-hundredth of a penny. It was at $80 two weeks ago, when it was one of the largest digital assets.

But there remain indications in the derivatives market that crypto traders are readying for—or even betting on—another major downward move in Bitcoin prices.

“The put/call ratio for Bitcoin open interest hit a 12-month high of 0.72 yesterday, indicating bearish sentiment among investors,” wrote a team at crypto market intelligence firm Delphi Digital.

A put/call ratio describes the environment of bets in the options market; puts are bets on prices moving lower, while calls are bets that prices will jump. 

“A high put/call ratio indicates that investors are speculating whether bitcoin will continue to sell off, or it could mean investors are hedging their portfolios against a downward move,”  the analysts at Delphi said.  “Last April, the put/call ratio traded as high as 0.96 before Bitcoin’s price dropped over 50% in May 2021.”

Beyond Bitcoin, the crypto Ether was even more buoyant. The token underpinning the Ethereum blockchain network rose 5% to above $2,050, well above last week’s trough below $1,800, but still down by nearly one-third from two weeks ago.

Smaller cryptos, or altcoins, also gained. Solana rose 4%, Cardano was up 2%, and Avalanche jumped 7%. Memecoins, which were initially intended as internet jokes rather than serious cryptocurrency prospects, were similarly in the green; DogecoinDOGEUSD –4.65%  and Shiba Inu both rallied 2%.