On September 22nd, the crypto market threatened to fall further towards its level from early August. Bitcoin, for example, briefly fell below $ 40,000, with the same fueling yet another “risky” narrative about Bitcoin.
Interestingly, a Bybt report shortly afterwards explained the extent to which Bitcoin remains a risky asset. “When the exchange sneezes, Bitcoin catches a cold,” it said.
The report endorsed the narrative, noting how the recent market sell-offs were sparked by the Evergrande debacle. While the episode is far from resolved, some recovery was underway at the time of writing. In fact, BTC was trading at around $ 44,650.
In addition, according to Charles Edwards, founder of Capriole Investments,
“In the short term, Bitcoin is a slave to the S&P. Extreme fear and greed lead to an extremely high correlation (we are in extreme fear today). The good news, however, is that a number of metrics suggest that S&P is close to bottom. “
So why is Bitcoin reacting this way?
A recent report from Arcane Research found that Bitcoin “behaves like a risk asset in the short term” after falling over 17% in a largely spot-on sell-off this week.
Since the 2020 Covid crash, BTC has shown a high correlation with S&P. That’s not all bad, however, as hopes of a reversal in the S&P and a return of BTC on the way remain high.
However, despite Bitcoin’s rebound on the charts, the funding rate on the exchanges remained below the zero axis. This suggests that investors are not careful with long positions and that short positions have subsidized long positions.
In addition, Bitcoin shorts in futures markets rose to 1,187 contracts, the largest since early August, according to CFTC data released on Friday. No wonder, then, that BTC’s recent correlation with the S&P affected market sentiment.
Risky in the short term, smooth in the long term
With Bitcoin options expiring at the end of the quarter on Friday and the Fed meeting, BTC’s volatility could rise sharply this week. In the long term, however, Bitcoin should prove itself.
Many long-term metrics showed signs of recovery for the top coin as the RSI finally bounced back above the 50-week MA. Furthermore, the long-term owners of SOPR looked like an outbreak too.
In addition, supply momentum for BTC indicated that it has steadily matured into old hands. In fact, nearly 2 million bitcoins have transitioned from short-term to long-term holders since hitting $ 65,000 high. This means that supply cannot match demand and patience could be rewarded.
On the contrary, at press time, Bitcoin’s Sortino Ratio was much lower than that of NASDAQ and the NYSE. However, the high returns since the beginning of the year continue to attract participants.
Ergo, the question is really whether the correlation of BTC with the S&P and the higher risk for larger participants actually make a difference? Well, when you look at the steady increase in new subscribers and active engagement, it seems like the market doesn’t care about the same.
In the long term, however, it would be important for BTC to distance itself from the larger market in order to maintain the “low risk, high return” flag.