Over the last month, Bitcoin’s price (BTC) has correlated tightly with stocks. Here’s what could be causing it.
The last week saw hundreds of billions of dollars wiped from the cryptocurrency industry’s overall market cap. Bitcoin’s price is down 8.8% over the last 7 days. Ethereum’s price (ETH) is down 15.4%. Binance Coin BNB) is down a further 17.9% over the same period. And pity the Dogecoin holder (DOGE) who bought last Saturday for a 20% loss by today.
In fact, all of the top ten cryptocurrencies by market cap, other than Solana (SOL), are in the red for the week.
The market route has tempted a central bank governor to issue another one of those Bitcoin obituaries. But cryptocurrency traders could be forgiven for thinking this week was going to be really rad for Bitcoin’s price at exchange.
In El Salvador, an entire sovereign government just embraced Bitcoin as an official currency. The total Bitcoin network’s hash power has come roaring back from the expulsion of miners from China. The hash rate has nearly doubled since its late-June lows.
Plus, there’s been a wave of big money pouring capital into Bitcoin. As Institutional Investor noted on Aug 26 that these massive investments (sometimes in $30 million blocks of bitcoin) are indeed coming from institutional investors:
“This came from Coinbase, a prominent cryptocurrency platform with a service that essentially acts as a prime broker for institutions. Its first-quarter report revealed that of the $335 billion in trades the company did in Q1 2021, $215 billion came from institutional investors.”
But that could be exactly why Bitcoin’s price has plummeted over the last week, despite all these positive signs for the blockchain’s business fundamentals. Institutional investors also went risk off this week in equities, with major stock indexes all down for the week too.
This is what the industry’s stakeholders are bargaining for when they cheer on the institutional adoption of Bitcoin. Along with all their capitalization comes their capitulations, and Bitcoin becomes an increasingly correlated asset roiled like high-tech stocks by broader market movements. It just has more dramatic crests and troughs along the way.
Blue: BTCUSD | Orange: S&P 500 Index | 1-month chart | Source: TradingView
When we chart Bitcoin’s price over the past month against the S&P 500 Index’s gains and losses, we see a strong correlation. Of course, BTC has a more dramatic and volatile curve, but there’s an unmistakable correlation all month at a glance. When we add in the Dow Jones Industrial Average, NASDAQ Composite, and UK100 or FTSE 100 Index, the correlation is further validated. The major stock indexes and Bitcoin’s price are moving in concert.
Blue: BTCUSD | Orange: S&P 500 Index | Indigo: NASDAQ Composite | Teal: Dow Jones Industrial Average | Gold: FTSE 100 1-month chart | Source: TradingView
The S&P 500 was down 1.63% for the last five days. The Dow was down 2.24%. The NASDAQ fell 1.29%. And the FTSE 100 was down 1.53%.
Institutional investors are pragmatic, cautious, and seek to maximize returns and mitigate losses. They don’t share the ideological convictions of Bitcoin hodlers or their wilder expectations for Bitcoin’s price. As they continue pouring into crypto, traders will have to constantly reevaluate and price in their froth and selling hands.
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