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There has been a frequent co-relation between Bitcoin and equities since the bearish saga emerged in May globally and continued to wipe investors wealth significantly. The multidecadal high inflation is the major factor for sparking sharp selloffs in market instruments. Cryptocurrencies also could not escape the uncertainties in macroeconomics and erased the $1 trillion mark. Bitcoin, the leader of the crypto world, has taken an intense beating due to panic selling amid weak global cues. On Monday, Bitcoin trades below the $20,000 mark. However, looks like there is no breather for Bitcoin from volatile days. All eyes are now set on US inflation data for June month which will be announced tomorrow. And once again, inflation is seen to create turmoil for Bitcoin.
As per CoinMarketCap data, Bitcoin currently trades at $19,910.44 nosediving by 2.47%. The coin had touched an intraday high and low of $19,747.31 and $20,650.09 respectively. Its market capitalisation is around $380,13 billion. Bitcoin's dominance is around 0.05%.
Vetle Lunde, an analyst at Arcane Research in his note today said, correlations between bitcoin and equities remain high as BTC’s 30-day correlation to Nasdaq and S&P 500 stays above 0.5. Following the crypto-specific sell-off related to UST’s collapse, correlations have declined from a peak above 0.8.
However, Lunde explained that in the period that followed, equities recovered, while bitcoin saw flat returns. However, as the inflation surprise of June 10th reached the market, correlations again grew, while bitcoin plunged and new collapses introduced new layers of unresolved contagion and uncertainty.
Year-to-date, Nasdaq has tumbled over 28% and its half-yearly decline is over 25%. However, the exchange has recovered some losses in the past month as it gained by over 5%.
Meanwhile, S&P 500 index slipped more than 19.5% in a year, while in six months - the drop is a little over 18%. However, in the past month, the exchange has gained nearly 3%.
On the other hand, Bitcoin took a steep downside so far this year. As per Coindesk data, Bitcoin plunged by nearly 58% so far in 2022, while in six months - the downside is over 54%. The monthly fall is over 28% as of today. Meanwhile, in a year, BTC has dropped over 41%.
The US is set to present June 2022 inflation data on Wednesday. Lunde said the market is expecting continued growth of the year-over-year CPI to 8.8%, up from the May year-over-year CPI of 8.6%.
Data by Arcane showed that earlier this year, U.S. inflation releases have been affiliated with volatile days in the crypto market, with the two most recent CPI releases creating havoc in the market. The analyst revealed that the April CPI release on May 11th saw the bitcoin plunge by 6%. However, while some of this carnage may be affiliated with CPI, this also occurred during the collapse of UST and Luna, which was likely the key component in BTC’s crash then.
Further, the May inflation release on June 10th, however, surprised the crypto market. After weeks of ranging, this inflation release pushed Bitcoin down 3.4% which led the crypto in emerging as the initial catalyst that further led to the liquidation of Three Arrows Capital and the ensuing mayhem in the lending sector. Many crypto exchanges have also halted their withdrawals to cap the losses arising from crypto markets. There is a liquidity crunch among major crypto companies.
Going forward, Lunde said, now, the market is bracing for further growth in the CPI, expecting new highs of 8.8% YoY.
Inflation surprises towards the upside lead to enhanced expectations of further tightening of monetary policies by the Federal Reserves. These contractionary policies have a broad impact on equities, and this macro backdrop has been an important factor in bitcoin's bear market since November 2021. He added, "Be prepared for volatility following Wednesday's CPI print."