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Bitcoin's Correlation with US Equities Falters Amid Supply Surge and Waning Demand
In recent developments, Bitcoin's correlation with US equities has notably weakened, diverging sharply due to an oversupply in the cryptocurrency market juxtaposed against insufficient demand. Historically, Bitcoin has closely mirrored movements in tech-heavy indices such as the Nasdaq 100. However, on Tuesday, the 90-day correlation coefficient between Bitcoin and the Nasdaq 100 dropped to 0.21, the lowest since early May. This figure, which reflects a decrease of more than 50% over the past two months, indicates a growing disconnection between the two assets. A coefficient of 1 would imply they move in unison, while minus-1 would indicate they move inversely.
Several idiosyncratic supply events have contributed to this decoupling. Joshua Lim, co-founder of trading firm Arbelos Markets, pointed out that Bitcoin is currently grappling with a significant supply overhang. This includes spot sales from coins seized by the German and US governments and distributions from the Mt. Gox estate. These factors have capped Bitcoin's potential upswing, even as other risk assets reach all-time highs.
The recent acceleration in Bitcoin's decline from its March high is attributed partly to the actions of Mt. Gox’s administrators, who have commenced returning $8 billion worth of tokens to creditors. Concurrently, German police have begun selling a portion of the 50,000 Bitcoin confiscated from a piracy website, exacerbating the supply influx. Manuel Villegas, a Next Generation research analyst at Julius Baer, emphasized that this surplus supply expected to hit centralized exchanges could dampen prices further, impacting market confidence.
Pressure on Bitcoin Miners
Compounding the situation, Bitcoin miners are under increasing strain to offload their tokens to manage declining profitability. April’s halving event, which reduced the new tokens rewarded to miners, has intensified their financial burden. This reduction in rewards, combined with ongoing operational costs, has led miners to sell parts of their token reserves. According to Villegas, the average all-in production cost for Bitcoin miners is approximately $54,500. When prices dip significantly below this threshold, miners are often compelled to liquidate some of their inventories to cover fiat-based expenses.
As of Tuesday, Bitcoin hovered around $57,070, reflecting a plunge of about 22% from its peak of $73,798 in March. The market's expectation of continued excess supply puts further pressure on Bitcoin's price, adding to the challenges faced by miners and investors alike.
