BTC Slides Below $30K, But Could Pump with Correlations

BTC Slides Below $30K, But Could Pump with Correlations

The Blockchain Industry: Exploring Bitcoin’s Correlations and Dip Buying Opportunities

Bitcoin Logo / Source: Adobe

Bitcoin (BTC), the cryptocurrency that powers the world’s largest decentralized cryptographically secured network, experienced a slight decline of around 1.5% on Tuesday, reaching a one-month low of approximately $29,500. This downward momentum follows a recent yearly high near $31,800. The surge was initially fueled by optimism surrounding spot bitcoin exchange-traded fund (ETF) filings from Wall Street giants and a US judge’s crypto-friendly ruling on XRP. However, BTC’s current slide has pushed its value approximately 2.5% below its 21-Day Moving Average. There is a possibility of further decline if BTC fails to maintain support in the mid-$29,000s, with a potential dip to the mid-$28,000s.

While the short-term technical outlook for bitcoin appears uncertain, there are macro tailwinds that could come to its aid. Bitcoin has historically exhibited strong correlations with the US stock market and the US dollar. If these correlations were to re-emerge, BTC could experience a significant price increase.

In the past few years, bitcoin has demonstrated a strong positive correlation with the US stock market. This correlation may be attributed to the fact that investors still perceive bitcoin as a “risk asset,” similar to stocks. Additionally, bitcoin’s positive correlation with easing liquidity conditions in the stock market has been observed. Throughout 2020 and 2021, bitcoin surged alongside the stock market due to low interest rates and quantitative easing (QE) measures implemented by major central banks. However, in 2022, as central banks began raising interest rates to combat inflation, bitcoin experienced a sharp pullback in sync with stocks, indicating a correlation shift.

Chart demonstrating the correlation between bitcoin and the US stock market

This change in correlation might be attributed to the evolving perception of bitcoin as a safe haven alternative to the centralized, inflationary fiat currency-based financial system. In March, when US regional banks faced challenges, bitcoin experienced a pump while stocks fell due to concerns about the impact on economic growth. The 60-day Pearson correlation between daily changes in the bitcoin price and the S&P 500, a widely recognized US equity benchmark, dropped to below 0.1, compared to its peak of 0.75 in May 2022. With the S&P 500 nearing all-time highs, declining US inflation, steady economic growth, the conclusion of the Federal Reserve’s tightening cycle, and the continued optimism surrounding artificial intelligence, bitcoin bulls are hoping for a resurgence of the positive relationship between bitcoin and the stock market.

Chart demonstrating the correlation between bitcoin and the US stock market

Another correlation that could potentially benefit bitcoin is its historically negative relationship with the US dollar or the US Dollar Index (DXY). The DXY represents a trade-weighted basket of USD exchange rates. According to CoinMetrics, this negative relationship reached its lowest point of the year, just above -0.2, after being below -0.5 in 2022.

Chart demonstrating the correlation between bitcoin and the US Dollar Index

Given the DXY’s recent decline to new yearly lows, it implies that bitcoin is undervalued at its current price levels. Bitcoin has traditionally exhibited a negative relationship with the DXY due to its connection with US financial conditions. When the Federal Reserve eases monetary policy, the DXY falls, and both stocks and bitcoin tend to perform well, and vice versa.

Chart demonstrating the correlation between bitcoin and the US Dollar Index

Considering these macro tailwinds from the US stock market and the US dollar, it is reasonable to maintain a bullish outlook on bitcoin in the VoAGI-term. Dip buyers are likely to monitor potential retests of support levels in the mid-$28,000s and the 2023 uptrend, which could come into play in the mid-$27,000s. These levels may present favorable opportunities for re-entry.

It is essential to note that investing in cryptocurrencies, including bitcoin, carries inherent risks. This article is intended for informational purposes only and should not be considered investment advice. It is crucial to conduct thorough research and exercise caution when investing in high-risk asset classes like cryptocurrencies.


Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.

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