Bitcoin was, at one point, considered a hedge against inflation as the value of the US dollar continued to decline. However, over time, the King Coin’s correlation with the stock index continued to grow. As a result, today, bitcoin has fallen to its lowest level in nearly 20 months.
Bitcoin needs CPR
The last time bitcoin capitulated was in March 2020. This was when the Covid-19 pandemic brought the world to a standstill. Now, while the market soon recovered, there was absolutely no hope of another such episode within the years that followed.
In the last 365 days, the political and economic situation of the world has been deteriorating continuously. As a result, BTC has also suffered losses due to the correlation of 0.6.
As highlighted by AMBCrypto last week, miners have started showing signs of capitulation. Now, investors have also entered the same arena.
Metrics across the board highlight some dedication to bitcoin. Here, metrics like Spent Output Profit Ratio and Net Realized Profit/Loss are worth looking at.
Yet, in the last month alone, bitcoin has seen the most significant decrease for the coin in the asset’s history. While it may seem like investors are gearing up for a price increase born of desperate optimism, the sudden return could be due to fewer investors in centralized entities.
Thus, self-custodial custody of their assets may be a more favorable route for bitcoin holders.
Going forward, the path of bitcoin’s price action will be determined not by the crypto-market, but by the stock market.
Consider this – historically, the second half of the years has seen distinct growth, with the first six months being the five worst, but still some growth.
In 1932, after a 43.48% contraction, the market improved by 42.98% in the fourth quarter. The last time this happened was in 1970 when after a 21% contraction, the market recovered by 26.72%.
Between January and June this year, the S&P 500 index lost 20.58 per cent. A recovery of this scale would bring bitcoin back to at least $46k.
However, one thing to note is that this is based on no further downside in the market.