On April 6, Bitcoin (BTC) experienced a significant price drop, falling below the $75,000 mark amid pressures from traditional markets. This decline coincided with the S&P 500 futures reaching their lowest levels since January 2024, highlighting the interconnectivity of cryptocurrency and traditional assets. Although Bitcoin later reclaimed the $78,000 level, the market remains volatile, leading many to question whether the price drop represents a bottom.
Evaluating the Correlation Between Bitcoin and Traditional Markets
Despite the recent plunge, historical precedents indicate that Bitcoin has shown resilience and a potential for recovery following similar downturns. Analysts note that while Bitcoin often correlates with traditional markets, these correlations tend to be ephemeral. Several indicators suggest that traders are currently waiting for more opportune entry points.
40-day correlation: S&P 500 futures vs. Bitcoin/USD. Source: TradingView / Cointelegraph
The correlation between Bitcoin and the S&P 500 has demonstrated significant fluctuations. For instance, in June 2024, these assets displayed a negative correlation as they moved in opposite directions. Interestingly, while the correlation metric exceeded 60% for approximately 272 days over the past two years, such elevated correlation periods seldom last long.
The recent decline in Bitcoin’s price to $74,440 can be attributed to increasing uncertainty within traditional markets. Despite frequent periods of heightened correlation, they rarely persist. Many major technology stocks are also witnessing declines of 30% or more from their all-time highs, contributing to the overall market unease.
Bitcoin vs Gold: A Perspective on Store of Value
Bitcoin maintains its position as one of the top 10 tradable assets globally, with a market capitalization of $1.5 trillion. While gold has long been revered as a “store of value,” it is noteworthy that its own volatility challenges this perspective. Taking a closer look, gold dropped to $1,615 in September 2022 and took three years to navigate back to its all-time high of $2,075.
Despite gold’s substantial $21 trillion market cap, Bitcoin’s presence in exchange-traded funds (ETFs) is gaining traction, with $92 billion managed in Bitcoin assets compared to $330 billion in gold. Moreover, Bitcoin instruments like the Grayscale Bitcoin Trust (GBTC) have been available on exchanges since 2015, giving Bitcoin an avenue for market engagement that is becoming increasingly relevant.
Understanding Bitcoin ETFs and Derivatives
From a derivatives perspective, Bitcoin perpetual futures appear stable, with the funding rate hovering near zero. This indicates a balanced demand between long and short positions. In contrast, negative funding rates observed during late March pointed to a stronger demand for bearish positions.
Bitcoin perpetual futures 8-hour funding rate. Source: Laevitas.ch
Furthermore, the relatively modest liquidation of leveraged long positions during the recent downturn indicates that traders may be adapting their strategies or minimizing their reliance on leverage in volatile conditions. Notably, the liquidation accounted for only $412 million between April 6 and April 7, a stark contrast to previous liquidations during higher volatility periods.
The sentiment among retail investors is also reflected in the demand for stablecoins, especially in China. Typically, a premium above the official US dollar rate indicates strong retail interest in cryptocurrencies, while a premium below 0.5% may signal caution as traders navigate market uncertainties.
The premium for USDT (Tether) remained at 1% on April 7, even amidst Bitcoin’s decline below $75,000. This suggests a market behavior where investors are cautiously reallocating to stablecoins while potentially waiting for a more stable market environment before re-entering cryptocurrency investments.
Historically, Bitcoin has exhibited a lack of correlation with the S&P 500. Combined with the near-zero funding rate for Bitcoin futures and the modest liquidation figures, the current market data may suggest that Bitcoin’s price has indeed hit a bottom at the $75,000 level.
Disclaimer: This article is for informational purposes only and should not be considered legal or investment advice. The opinions expressed herein reflect the views of the author and do not necessarily represent those of Cointelegraph.
