By
Steve Muchoki
April 19th, 2024
If the sell-off in the US equity market doesn’t cool down anytime soon, we can expect further corrections in Bitcoin and the broader crypto market.
A brutal market sell-off continued across Wall Street and crypto markets on Monday, May 8. The world’s largest cryptocurrency tanked by more than 10% taking a dive under $30,000 for the first time since July 2021. Although Bitcoin has recovered partially from the bottom, it is still 5.5% negative at $31,750 levels, investors are experiencing losses. Apart from this, the altcoin market has seen an even more intense sell-off. All the drama surrounding Terra’s UST de-peg has put pressure on the price of LUNA. On the other hand, top altcoins like Ether (ETH) and Binance Coin (BNB) have corrected 8-10%.
The continued sell-off in crypto comes as the US equity market remains highly volatile. On Monday, May 9, the Nasdaq Composite (INDEXNASDAQ: .IXIC) tanked 4.3% registering its largest single-day sell-off since 2020.
Bitcoin continues to show a higher correlation with the US equity market, particularly the tech-heavy Nasdaq Composite. Speaking to CNBC, Steven McClurg, chief investment officer at Valkyrie Investments said:
“Equity and Crypto markets are selling off across the board due to a broad shift from risk-off to heavy risk-selling. The correlation between the two asset classes has grown more pronounced in recent months due to the number of publicly traded companies involved in blockchain and digital assets, and we are likely to see these markets move largely in lockstep for at least some time”.
The inflation numbers for the U.S. market will come by Wednesday, May 11. If the CPI shows no signs of slowing down, we can expect tighter monetary actions from the Fed. However, a drop in CPI could prove to be a major breather for the equity market.
40% of Bitcoin Investors in Losses
Bitcoin has been under a severe correction since last November 2021. It has corrected 55% from its all-time high of $69,000. As per the data from Glassnode, nearly 40% of Bitcoin investors are underwater on their latest holdings.
Over the last month, 15.5% of all Bitcoin wallets witnessed unrealized losses. Furthermore, the Glassnode analysts noted that there’s been a sharp surge in the influx of “urgent transactions” during the latest market sell-off.
Over the last week’s volatility, more than $3.15 billion worth of Bitcoin moved into and out of the exchanges. This is the highest number since November 2021. The latest Bitcoin Fear and Greed Index shows the investor sentiment to be under “extreme fear”.
Bitcoin Fear and Greed Index is 10. Extreme Fear
Current price: $29,913 pic.twitter.com/JZFFK2esWY— Bitcoin Fear and Greed Index (@BitcoinFear) May 10, 2022
On-chain data provider CryptoQuant notes that “the higher the loss % the better it is to accumulate at those prices”. The latest data from CryptoQuant also shows that institutional investors have been selling heavily as of now. It mentions:
“The Coinbase Price Premium has started trading negative around May 2nd (hourly data). Institutional investors and large investors often use Coinbase Pro to buy and trade bitcoin. Following this, a negative price premium indicates that selling pressure might be coming from these types of investors.”
El Salvador President Nayib Bukele took advantage of this current situation and announced buying 500 additional bitcoins as part of the country’s reserves.