Bitcoin’s correlation with stocks has increased to alarming levels, according to some market analysts.
Bitcoin (BTC) prices could drop 20% in the coming months, but that has not deterred its wealthiest investors from hoarding.
The amount of Bitcoin held by “single entities” with a balance of at least 1,000 BTC, or so-called “whales,” has risen to its best levels since September 2021, data from Glassnode shows.
Interestingly, the number increased last week despite Bitcoin price falling from $43,000 to around $38,000.
Marcus Sotiriou, an analyst at GlobalBlock, a UK-based digital asset broker, viewed the latest surge in Bitcoin whale holdings as a bullish indicator, recalling a similar move in September 2021 that preceded a price rally of BTC to $69,000 all-time high in November. 2021.
“Since whales have a substantial impact on the market, it’s important to take note of this metric,” he said.
Bitcoin at Risk of Falling Further
The price of Bitcoin has fallen from $69,000 in November last year to almost $40,000 as of the end of April 2022, driven lower primarily due to the Federal Reserve’s decision to aggressively raise interest rates and cancel its quantitative easing program to control inflation.
Interestingly, Bitcoin’s decline has mirrored similar downward moves in the US stock market, with its correlation to the Nasdaq Composite reaching 0.99 in mid-April. An efficiency reading of 1.00 shows that the two assets have been moving in perfect tandem.
“You should think of this high correlation as a gravitational field pulling on the price of Bitcoin,” says Nick, an analyst at data resource Ecoinometrics.
He further stated that, “If the Fed turns the stock market into a black hole, don’t expect Bitcoin to escape a big drop.”
Technical indicators are consistent with depressive fundamental indicators. In particular, Bitcoin has been falling from a “bearish flag” pattern and is at risk of further price declines in the coming months.
The downside target of the bear flag is below $33,000. Meanwhile, Brett Sifling, investment adviser at Gerber Kawasaki Wealth & Investment Management, says a break below $30,000 would open the door for a drop as low as $20,000.
All eyes on the Federal Reserve
Sotiriou remains long-term bullish on Bitcoin, noting that the US gross domestic product (GDP) shrinking by 1.4% in the first quarter of 2022 may cause the Federal Reserve to become less aggressive in avoiding a recession.
“As long as we see these macro headwinds persist, I think the correlation with the Nasdaq will continue,” the analyst told Cointelegraph.
“However, the longer this consolidation continues, the bigger the expansion will be when the Fed changes course from hard to dovish.”
Bitcoin’s Potential for “Asymmetric Returns”
Meanwhile, Nick believes that Bitcoin will recover faster than US stocks after the next big market crash.
He further explained by comparing the size and duration of BTC drawdowns, a correction period between two consecutive all-time highs, against tech stocks including Netflix, Meta, Apple, and others. Notably, Bitcoin rallied faster than said US stocks each time.
In his opinion, “Bitcoin doesn’t look much different than your typical stock investment. So do not worry too much about volatility and focus instead on long-term growth potential. Those who bet on lopsided returns will be rewarded over time.”
By Audy Castaneda
