What to Take Away
- As the cryptocurrency asset continues to move in tandem with the stock market, Bitcoin dropped to $56,000 before regaining some ground.
- If the Federal Reserve announces a rate cut later this month, analysts at Bitfinex anticipate that bitcoin could fall another 15% to 20%.
- As Treasury yields fall, risk-on assets like cryptocurrencies are expected to benefit from a rate cut.
In the midst of a broader stock sell-off, led by declines in market heavyweight Nvidia (NVDA), Bitcoin prices (BTCUSD) fell to $56,000 in the early hours of Wednesday before recovering some of those losses later in the day.
Not only are investors becoming concerned about the cryptocurrency, According to Farside Investors, bitcoin exchange-traded funds also saw $287.8 million in outflows on Tuesday, marking the fifth day in a row of net outflows.
Why Are Stocks Causing a Bitcoin Sell-Off?
Some have questioned the crypto asset’s suitability as a hedge due to its correlation with sell-offs in the Nasdaq and S&P 500 as well as the most recent drop in bitcoin’s price.
Despite being touted as a safe-haven asset, data from The Block show that bitcoin has recently moved more in line with the traditional stock market than gold.
On a scale from 0 to 1, Bitcoin’s Pearson correlation with the Nasdaq reached a high of 0.9 in June, bringing it into the spotlight during the sell-off in stocks about a month ago.
While the crypto asset’s correlation with gold became slightly inverted, Bitcoin’s correlation with stocks has decreased slightly since then, but it remained above 0.5 as of last week.
The Future of Bitcoin?
The price of bitcoin reached a new all-time high of more than $73,000 in March thanks to the approval of spot bitcoin ETFs and optimism surrounding the earlier this year’s bitcoin halving. However, the Federal Reserve may have a greater impact on Bitcoin’s future.
Yields on U.S. Treasurys increased as the Federal Reserve raised rates to combat inflation, making them more appealing to investors than riskier assets like stocks and bitcoin. As yields fall, those assets may benefit from a rate cut.
“Since early August, Bitcoin has gained over 32%, driven by traders anticipating dovish comments by the Federal Reserve,” the Bitfinex analysts wrote in their report. “However, analysts from Bitfinex predict more pain for bitcoin with a potential 15% to 20% bitcoin sell-off in the cards following a rate cut from the Federal Reserve later this month.” As concerns about a recession grow, a more aggressive 50 basis point cut may result in an immediate price increase but also a correction.
In recent trading, Bitcoin was above $58,000.
