Market Turmoil Triggers Crypto Volatility
In light of the recent turbulence in the Japanese and United States stock markets, the crypto space has experienced heightened volatility. This underscores the deep connection between global markets and the increasing correlation between Bitcoin and traditional financial markets (TradFi).
According to analysts at the cryptocurrency exchange Bitfinex, outlined in the latest Alpha report, Bitcoin’s growing correlation with TradFi markets could lead to continued downward momentum for the digital asset if stock market declines persist.
Bitcoin’s Potential for Further Decline
Various economic and political events affecting all markets have contributed to a broader instability, leading to the Topix index of the Japanese stock market recording its most significant two-day decline since the 2011 tsunami. The index has dropped by 9.2% over the past two trading sessions, starting with a 6.1% plunge on Friday.
- Bank of Japan’s unexpected rate hike on Wednesday and a hawkish tone from Governor Kazuo Ueda triggered the downturn.
- On Wall Street, U.S. equities and Treasury yields saw significant declines after a disappointing jobs report and concerns about the Federal Reserve delaying interest cuts.
- The S&P 500 has closed three consecutive weeks in the red, with analysts noting a peak-to-trough decline of approximately 6.5%.
“Since BTC and the SPX have experienced positive correlation since mid-July, we expect the oscillating nature of the correlation to play out and the correlation across risk assets to increase moving forward. However, if the stock market continues to be plagued by downside, it is increasingly likely that BTC might continue to face downward pressures in such a scenario,” the report stated.
Altcoins Facing Challenges
With Bitcoin hitting its lowest price point since mid-February and the potential for further decline, Bitfinex analysts suggest that altcoins could be the most affected by these market conditions.
- Solana (SOL) has experienced a significant weekly decline of 28% and a peak-to-trough fall of 43%.
- Other altcoins are also facing volatility and erosion in their market capitalization.
- Investors are advised to be cautious as some altcoins may struggle to survive this market correction.
Furthermore, the crypto market has seen a reduction of approximately $1.16 billion in the last day due to the rapid price decline. This decline has resulted in $982.4 million in long liquidations and $180.51 million in short liquidations.
Hot Take: Impact of Global Markets on Crypto
The recent correlation between Bitcoin and traditional financial markets reflects how interconnected global markets are. As economic and political events continue to influence various markets, the volatility in the crypto space is likely to persist. Investors should remain cautious and stay informed about market developments to navigate this challenging period.
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