There has been a steady correlation between bitcoin and equities since the global bearish saga emerged in May and continues to erode investors’ wealth substantially. Multi-decade high inflation is a major factor for sharp selloff in market instruments. Cryptocurrencies also could not escape the uncertainties in macroeconomics and erased the $1 trillion mark. Bitcoin, the leader of the crypto world, has taken a sharp beating due to a panic sell-off amid weak global cues. On Monday, bitcoin was trading below the $20,000 mark. However, it seems that there is no respite from the volatile days for Bitcoin. All eyes are now on US inflation data for the month of June, which will be announced tomorrow. And once again, inflation appears to be creating turmoil for Bitcoin.
According to CoinMarketCap data, Bitcoin Currently trading at $19,910.44 which is down 2.47%. The coin had touched a high and low of $19,747.31 and $20,650.09 respectively. Its market capitalization is around $380.13 billion. Bitcoin dominance is around 0.05%.
As Vatel Lunde, an analyst at Arcane Research, said in his note today, the relationship between bitcoin and equities BTC’s 30-day correlation with the Nasdaq and S&P 500 remains above 0.5. Following a crypto-specific selloff related to the collapse of UST, the correlation has fallen from a peak above 0.8.
However, Lunde explained that in the later period, equities corrected while bitcoin saw flat returns. However, as soon as the inflationary surprise hit the markets on June 10, correlations rose again, while bitcoin fell and the fresh collapse introduced new layers of unresolved transition and uncertainty.
Year-over-year, the Nasdaq is down more than 28% and its semi-annual decline is more than 25%. However, the exchange has recovered some losses in the past month as it has gained over 5%.
Meanwhile, the S&P 500 index slid more than 19.5% in a year, while in six months — the decline is a little over 18%. However, over the past month, the exchange has gained around 3%.
Bitcoin, on the other hand, has seen a massive drop so far this year. According to data from Coindesk, so far in 2022, bitcoin is down about 58%, while in six months – the downside is more than 54%. The monthly decline is over 28% as of today. Meanwhile, in one year, BTC fell by over 41%.
The US is set to present inflation data for June 2022 on Wednesday. Lunde said the market is expecting continued year-on-year CPI growth of 8.8%, up from May’s CPI of 8.6%.
Data from Arcane shows that the US inflation release earlier this year correlated with volatile days in the crypto market, with the two most recent CPI releases causing havoc in the market. The analyst revealed that on May 11, the CPI released in April saw bitcoin fall by 6%. However, although some of this massacre may have been linked to the CPI, it also occurred during the collapse of UST and Luna, which were major components in BTC’s crash at the time.
Furthermore, the inflation released in May on June 10 shocked the crypto market. After a hiatus of weeks, this inflation release pushed bitcoin down 3.4%, causing the crypto to emerge as the initial catalyst, leading to the liquidation of Three Arrows Capital and the ensuing devastation in the debt sector. Many crypto exchanges have also stopped their withdrawals to reduce the losses from the crypto markets. There is a liquidity crunch among the major crypto companies.
Going forward, Lunde said, now, the market is poised for further increase in CPI, expecting a new high of 8.8% YoY.
The surprise increase in inflation raises hopes of a further tightening of monetary policies by the Federal Reserve. These contractionary policies have a massive impact on equities, and this macro backdrop has been a key factor in bitcoin’s bear market since November 2021. “Be prepared for volatility after Wednesday’s CPI print,” he said.
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