Bitcoin Loses Bullish Edge as Correlation to Traditional Markets Rises
Summary:
Bitcoin's bullish momentum has reportedly dipped as its association with traditional markets strengthens. Despite experiencing minor volatility on January 14, Bitcoin's price retained its position above $41,800. Some analysts attribute the 9.1% BTC price correction on January 12 to Bitcoin miner outflows. Digital asset manager CoinShares predicts that the average Bitcoin mining cost will rise to $37,800 after the April 2024 halving. As Bitcoin's correlation to gold and stock markets rises, investors seem to have adopted a more cautious stance towards Bitcoin's short-term price increase.
The shift in Bitcoin (BTC) derivatives suggests that the bullish momentum observed over the past four weeks has faded, as Bitcoin's association with traditional markets has significantly increased. Bitcoin held strong above the $41,800 mark throughout the volatility experienced on the night of January 14, which saw its price drop down to $41,690, shedding 3% in the initial hours of January 15.
Interestingly, this marked the price support level of $41,800 being challenged for the sixth time within a period of a month. Now, participants in the market are speculating whether this latest price action denotes robustness and what the potential catalysts for a possible rally above the $44,000 level could be.
Some market observers point to the 9.1% downward correction in the BTC price on January 12 as resulting from the movement of Bitcoin by miners, with CryptoQuant noting nearly $1 billion of BTC transfers to exchanges, marking a six-year peak. There's apprehension among investors that the growing Bitcoin hash rate, having risen by 44% in the previous six months, may push miners to expedite their selling, including from their reserves.
Predictions from CoinShares, a digital asset manager, state that the average mining cost for Bitcoin post the halving event in April 2024 will skyrocket to $37,800. Their report, analyzing 19% of the existing Bitcoin mining hashpower, anticipates that only five out of 14 companies evaluated would continue to be profitable subsequent to the halving. Thus, the pessimism towards Bitcoin miners' continual outflows to exchanges seems to substantiate.
The correlation between Bitcoin, gold, and stock markets have been relatively high over the last month with Bitcoin's price remaining relatively steady in the 30 days concluding on January 15. This suggests the impact of Bitcoin's spot ETF kickoff on January 11 had minimal long-term consequences. It's noteworthy that both the S&P 500 futures and the gold price (in terms of the US dollar) rose by 0.5% during the same period.
An example of how macroeconomic components have similarly influenced Bitcoin and traditional assets comes from Germany, Europe's biggest economy, which revealed a marginally adjusted 0.1% GDP shrinkage for 2023 compared to the preceding year. Concerningly, Germany's economy ministry highlighted that "no early indicators for a speedy economic recovery are evident," as per reports by Reuters.
Meanwhile, the main worry in the US lies in inflation, following a 3.4% increase in the Consumer Price Index in November. In effect, investors realized the efforts of central banks to cut down interest rates may endure longer than expected, encouraging a preference towards fixed-income investments.
The critical takeaway from an analysis of Bitcoin futures, also known as the basis rate, is that investors' sentiment for Bitcoin has turned somewhat pessimistic. These findings show that the BTC futures premium has normalized at 9%, falling below the neutrality threshold against the sustained bullish drive seen up until January 12.
Although the root cause of the correction to $41,690 isn't entirely clear, potential reasons could involve comments from BlackRock's CEO Larry Fink, who recently downplayed the importance of BTC as a "currency" while emphasizing its role as an "asset class." His remarks on the spot ETF as merely a "stepping stone towards the tokenization of real-world assets" aren't necessarily promising for the short-term BTC price momentum.
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Published At
1/15/2024 7:16:08 PM
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