Bitcoin prices (BTCUSD) plunged to $56,000 on Wednesday morning amid a broader stock market sell-off, led by declines in major technology stocks such as Nvidia (NVDA). Although Bitcoin partially recovered later in the day, the cryptocurrency faced significant turbulence as investor sentiment shifted.
Adding to the bearish sentiment, Bitcoin exchange-traded funds (ETFs) experienced $287.8 million in outflows on Tuesday, marking the fifth consecutive day of net outflows, according to Farside Investors.
Correlation with Stock Market Raises Concerns
The recent drop in Bitcoin’s price aligns with declines in the Nasdaq and S&P 500 indexes, raising questions about Bitcoin’s effectiveness as a hedge against stock market fluctuations. Data from The Block reveals that Bitcoin has recently shown a stronger correlation with the stock market than with gold, despite its reputation as a safe-haven asset.
Bitcoin’s Pearson correlation with the Nasdaq peaked at 0.9 in June, indicating a strong relationship between the two. This correlation remained above 0.5 last week, while its correlation with gold has slightly inverted.
Future Outlook for Bitcoin
Bitcoin’s price surged to over $73,000 in March, driven by optimism surrounding the approval of spot Bitcoin ETFs and the recent Bitcoin halving. However, the Federal Reserve’s monetary policy could significantly impact Bitcoin’s trajectory. With the Fed’s recent rate hikes making U.S. Treasurys more attractive compared to riskier assets like Bitcoin and stocks, a potential rate cut could influence future Bitcoin performance.
Analysts from crypto exchange Bitfinex anticipate further challenges for Bitcoin, forecasting a potential 15% to 20% decline following a rate cut by the Federal Reserve later this month. “Since early August, Bitcoin has gained over 32%, fueled by expectations of dovish comments from the Fed,” the Bitfinex analysts noted. “A more substantial 50 basis point cut could initially boost prices but might be followed by a correction due to escalating recession concerns.”
Currently, Bitcoin is trading above $58,000, reflecting ongoing volatility in the market.
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