Short-term holders increase buying activity within Bitcoin

Analytical agency IntoTheBlock reported that retail investors were clearly active in the face of the fall of the flagship cryptocurrency below the $20,000 area. It was this category of bidders that played the role of aggressive buyers amid the recent sale of bitcoin.

Experts note: that investors hold the maximum amount of assets since January of this year. The total reserves of bidders grew by almost 29%, reaching 2.1 million BTC coins. The Glassnode edition also came to a similar conclusion. The publication’s experts noted that wallets with a balance of less than 10 BTC showed significant buying activity in June.

It was also noted that crypto whales also became more active in the context of the global drawdown of the flagship cryptocurrency. Addresses with a balance of 1000 BTC or more bought coins at the bottom, simultaneously withdrawing assets for long-term cold storage.

Earlier, the Crypto.ru team reported that the El Salvadoran authorities decided to purchase an additional 80 bitcoin coins. Even despite the fact that May of this year turned out to be the most difficult period in the history of the crypto market, it seems that the leadership of El Salvador is optimistic about the current situation. If you believe the general estimates, then the country owns 2400 BTC coins, which is estimated at $45.6 million at the current exchange rate. Also, the head of the Ministry of Finance, Alejandro Celaya (El Salvador), during his recent interview, said: the significant volatility of the flagship cryptocurrency will not become a threat to the financial stability of the state .

What is market correlation?

In simple terms, it is the relationship of two or more financial instruments. There are two types:

• Direct (assets move in one direction).
• Reverse (assets move in the mirror direction).

There is a so-called correlation effect, which lies in the range from +1 to -1. If two instruments move synchronously in the same direction, then this indicator is equal to +1. In the case of a strictly mirror movement, the correlation is -1. When the indicator is at 0, this indicates that there is no connection between the assets.

For a long time it was believed that bitcoin had no correlation with traditional markets. It is noteworthy that until recently this thesis was actually confirmed in practice. Analytical agency Messari conducted a statistical analysis of the movement of BTC over 10 years. Weth price  It turned out that the flagship cryptocurrency in this period of time was not interconnected with securities, precious metals and commodities.

The Birth of the Relationship Between Bitcoin and the Stock Market

For a long time, cryptocurrencies have shown independence from geopolitical and macroeconomic circumstances due to their insufficient prevalence. But as digital currencies become popular, the connection between virtual assets and traditional markets has become more and more obvious.

It is worth mentioning the end of the summer of 2018, when a trade war broke out between China and the United States. The then President of the United States, Donald Trump, imposed an additional embargo on imports of goods from the Middle Kingdom. The S&P 500 index reacted to this circumstance with a fall.

Bitcoin, on the other hand, felt stable during that period, as investors actively used it as a protective tool. But everything changed in March 2020, when the World Health Organization announced the COVID-19 epidemic. Then the markets – stock and digital coins – began to decline simultaneously. The reason was a banal panic, in which people massively withdrew assets into fiat money.

During 2020, the correlation coefficient between Bitcoin and the SPX Index (S&P500) reached 0.9 at times. This means that the assets moved almost in sync, but there were minor deviations. In 2021, the corona crisis has put a lot of pressure on the global market. And 2022 clearly demonstrated that in the context of geopolitical and macroeconomic instability, bitcoin is perceived as a high-risk asset, continuing to steadily correlate with the stock market.

What are the reasons?

The current correlation of stock indices and BTC cannot be considered something unique and extraordinary. Their connection does not mean at all that the flagship currency has lost its fundamental property – decentralization. Practice shows that in a severe crisis, the correlation coefficient approaches the mark of 1. That is, many assets behave as similarly as possible.

Rapid inflation, geopolitical instability, the energy crisis, the threat of a global recession, the effects of the COVID-19 pandemic are all prompting investors to massive asset sales. Thus, they seek to fix their positions and withdraw the “cash”. Take a look at the gold chart.

Since the beginning of March 2022, xwp price the precious metal has been in a steady bearish trend. But this is contrary to logic, we are all used to the fact that in a crisis, investors invest in precious metals in order to protect themselves from inflation.

But the current crisis is unique in its own way. The world has not fully recovered from the consequences of the pandemic, many countries are facing uncontrolled inflation, and global geopolitical events are exacerbating the situation. In such conditions, investors, in order to avoid additional risks, simply sell assets and withdraw fiat. This behavior of market participants puts strong pressure not only on traditional assets, but also on cryptocurrencies.

What will happen next?

Many experts are confident that in the future, bitcoin will recover faster than the stock market. But it should be understood that this is more of a prejudice, and not dry facts. The statistics are not enough to make clear predictions. At the same time, the current crisis is very different from the previous ones.

It can be assumed that the current correlation between Bitcoin and stock indices is a temporary phenomenon. But BTC is extremely volatile and unpredictable, therefore it cannot be considered as a “safe haven”, it still remains a high-risk asset.

Surely Bitcoin will continue to correlate with stock indices, under serious pressure. And this will last until the global economy begins to stabilize.

I believe that in order to overcome the existing relationship in the crypto market, there must be a massive capitulation of sales. Against this background, large funds and companies will be forced to record losses. The digital assets segment needs to “shake out” all the players and attract a new target audience. It is quite possible that in such conditions a global bull cycle will begin, and bitcoin will break the direct correlation with the stock market.