Key Takeaways:
- Bitcoin price slid 4% in the previous 24 hours, hinting at a bearish short-term trend.
- The flagship crypto continues to decouple from stocks.
- Equities shake off recession fears and might see another leg up.
YEREVAN (CoinChapter.com) – Bitcoin (BTC) lost 4% of its value on July 25, dropping to $29,100. The move came as a part of a consolidation phase the flagship crypto entered after a near-30% bullish advance in mid-June.
The downturn came on the back of fizzling investor interest. According to CoinShares’ weekly “Digital Asset Fund Flows Weekly Report,” the Bitcoin market saw $13 million in outflows as Ethereum and other altcoins like XRP entered the limelight.
Bitcoin’s monthly results were overwhelmingly positive, with $264 million against Ethereum’s $6.3 million. However, the short-term focus shift contributed to the decline. If the latter continues, BTC could drop to $27,300 (an additional 7%) to the up-trending support, relevant since Jan 2023.
Stock market braces for a rally
Bitcoin’s initial mid-June uptrend came from the Federal Reserve’s decision to raise interest rates, which contributed to the stock market’s decline in the same period. However, the tables have turned, and the stocks are brushing off recession fears, preparing for a possible leg up.
The Fed might still push more hawkish policies in 2023, causing lofty equity valuations. However, the US stock market index S&P 500 has advanced 19% YTD even as analysts expect 2023 corporate earnings to inch up barely.
Mike Mullaney, director of global markets research at Boston Partners, commented, “There’s not a lot of leeway for bad news right now in equities.” Additionally, the job market remained robust, with the unemployment rate hitting a 53-year low earlier this year.
Dryden Pence, chief investment officer at Pence Capital Management, said Fed has a real chance of “sticking the landing” and avoiding recession, albeit reasons for concern remain.
The data presented above confirms that Bitcoin has further decoupled from stocks.
Bitcoin decoupling continues
While Bitcoin started 2023 with a daily correlation coefficient near 0.90 with the S&P 500, Nasdaq, and Dow Jones Industrial Average (DJIA), those have declined. A 40-day correlation coefficient for the token and the tech-heavy Nasdaq 100 index has fallen below 0.50.
The said level has been unseen since January, continuing the Q2 trend.
According to Andrew Melville, research analyst at BlockScholes, in early July, the correlation was “at the lowest level observed since July 2021, when BTC was between its twin peaks in April and November.” He added that the correlation fall has happened “as both assets have retraced losses sustained throughout last year’s tightening cycle.”
Furthermore, James Butterfill, the head of research at CoinShares, agreed.
The researcher asserted that Bitcoin’s correlation with equities dropped to 12% in May, the lowest reading since 2021. In a recent interview, he asserted that “equities never do well, with the prospects of recession, but something like Bitcoin will do quite well because it’s like a monetary policy hedge.”
Geoff Kendrick, head of FX research at Standard Chartered, agreed that Bitcoin could do well in the coming recession and the event of a default. However, he commented that Bitcoin would not rally in a straight line in the event of a US default but rather “could dip by $5,000 initially, then jump by $25,000,” he estimated.
As of July 25, Bitcoin’s short-term prospects are not bullish. However, the Fed’s future policy will define the market for the upcoming quarter.
