Bitcoin Loses Correlation With US Equities As Supply Challenges Mount

Bitcoin Loses Correlation With US Equities As Supply Challenges Mount

In recent months, the correlation between surging US equities and Bitcoin (BTC) has shown signs of collapse, as the cryptocurrency faces a combination of excess supply and weakened demand that has led to an over 20% price drop from June highs above $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 index dropped to 0.21 on Tuesday, marking its lowest level since the beginning of May. This decline reflects a more than 50% drop in correlation over the past two months. 

Market experts attribute this decoupling to several “idiosyncratic” supply events affecting Bitcoin. Joshua Lim, co-founder of trading firm Arbelos Markets, explains that the cryptocurrency is grappling with the impact of spot sales from seized BTC held by the German and US governments experienced over the past month, as well as the distribution of funds from the defunct Bitcoin exchange Mt. Gox. 

As reported by NewsBTC, Bitcoin’s decline since its March all-time high of $73,700 has been accelerated by the recent process initiated by Mt. Gox’s administrators to return approximately $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, adding to the ongoing selling pressure seen last month. 

Manuel Villegas, research analyst at Julius Baer, highlights the looming supply overhang as the primary factor impacting market confidence. Villegas stated:

Excess token supply is expected to reach centralized exchanges in the next few days, likely putting pressure on prices. The looming supply overhang has been the main factor affecting confidence.

Miner Capitulation And Falling Profits

In addition to these challenges affecting BTC’s price, Bitcoin miners face pressure to sell tokens due to declining profitability. 

These miners, responsible for powering the Bitcoin blockchain, are dealing with the financial fallout from April’s Halving event, which reduced the number of new tokens they receive for their mining activities. 

In response, some miners sell some of their BTC holding inventory to offset their fiat-based operating costs. Data from crypto analytics firm CryptoQuant shows that miner capitulation mirrors December 2022 levels with a 7.7% hashrate drop, similar to post-FTX collapse conditions.

According to estimates made by Bloomberg, the average all-in cost of production for miners is approximately $54,500. When prices fall significantly below this threshold, miners may need to liquidate some token holdings to cover operational expenses.

Ultimately, the combination of supply overhang from seized coins, the Mt. Gox distribution, and miners’ selling pressure has increased uncertainty for investors, further affecting BTC’s price recovery. 

At the time of writing, BTC has managed to recover the $57,850 level, surging over 2% in the past 24 hours. 

Featured image from DALL-E, chart from TradingView.com