The correlation between rising U.S. stock prices and bitcoin (BTC) has shown signs of breaking down in recent months as the cryptocurrency has struggled with a combination of excess supply and weakening demand, leading to a price drop of more than 20% since a June peak of more than $70,000 for the largest cryptocurrency on the market.
Bitcoin Correlation with Nasdaq 100
According to Bloomberg, the 90-day correlation coefficient between bitcoin and the Nasdaq 100 fell to 0.21 on Tuesday, reaching its lowest level since early May. The decline reflects a more than 50% drop in correlation over the past two months.
Market experts attribute the disconnect to several “idiosyncratic” supply events affecting Bitcoin. Joshua Lim, co-founder of trading firm Arbelos Markets, explains that the cryptocurrency is struggling with the impact spot sale of seized BTC held by the German and US governments, which they have experienced over the past month, as well as the distribution of funds from the defunct Bitcoin exchange Mt. Gox.
How reported According to NewsBTC, Bitcoin’s decline from its March all-time high of $73,700 has been accelerated by a recent lawsuit initiated by Mt. Gox administrators to return about $9 billion worth of tokens to creditors.
In addition, German authorities sold more than half of the 50,000 BTC seized from a pirate website in January, intensifying the selling pressure seen last month.
Manuel Villegas, research analyst at Julius Baer, emphasizes that the main factor influencing the situation is the upcoming supply glut market confidence. Villegas stated:
The token oversupply is expected to reach centralized exchanges in the next few days, which will likely put pressure on prices. The looming oversupply has been a major factor influencing confidence.
Miners’ capitulation and falling profits
In addition to these challenges affecting the price of BTC, Bitcoin miners are facing pressure to sell tokens due to falling profitability.
The miners who power the Bitcoin blockchain are coping with the financial fallout from April’s crisis. Halving eventwhich reduced the number of recent tokens received for mining activities.
In response, some miners are selling some of their BTC holdings to cover fiat-based operating costs. Data Data from cryptocurrency analytics firm CryptoQuant shows that miner capitulation is mirroring December 2022 levels with a 7.7% decline in hash rate, similar to conditions following the FTX crash.
According to Bloomberg estimates, the average total cost of production for miners is around $54,500. When prices fall significantly below that threshold, miners may need to liquidate some symbolic resources to cover operating costs.
Ultimately, the combination of excess supply from seized coins, Mt. Gox distribution, and miner selling pressure increased investor uncertainty, which further impacted the BTC price recovery.
At the time of writing, BTC has managed to reclaim the $57,850 level, up over 2% in the last 24 hours.
Featured image from DALL-E, chart from TradingView.com
