Bitcoin Correlation With TradFi Markets Is Rising, What Does This Mean?

The continued turmoil in the Japanese and US stock markets has led to increased volatility in the crypto space. This highlights the interconnectedness of global markets and the growing correlation of Bitcoin with traditional financial markets (TradFi).

Analysts at crypto exchange Bitfinex explained in the latest Alpha report that Bitcoin’s growing correlation with TradFi markets could mean continued downward momentum for the digital asset if the stock market’s declines persist.

Bitcoin could fall further

Economic and political developments affecting all markets have unleashed broader volatility that has seen Japan’s Topix stock index post its biggest two-day decline since the 2011 tsunami. The index has down 9.2% over the past two trading days, starting with a 6.1% drop on Friday.

Bitfinex revealed that the Bank of Japan’s unexpected rate hike on Wednesday and Governor Kazuo Ueda’s hawkish tone triggered the recession that has seen one of the world’s best-performing markets witness a significant correction.

Similarly, losses on Wall Street began on Friday, with US stocks and Treasury yields plummeting to multi-month lows after a disappointing jobs report, concerns that the Federal Reserve delayed interest cuts and fears of an economic slowdown. The S&P 500 has closed three consecutive weeks in the red for the fourth time since the 2022 bear market lows. Analysts saw a peak-to-low decline of about 6.5%.

“As BTC and SPX have experienced positive correlation since mid-July, we expect the oscillating nature of the correlation to develop and the correlation between risk assets to increase in the future. However, if the stock market continues to bear down, it is increasingly likely that BTC will continue to face downward pressures in this scenario,” the report states.

Some Altcoins may not survive

With bitcoin hitting its lowest price since mid-February and still facing the risk of a further drop, Bitfinex analysts believe altcoins may suffer more.

Altcoins are already down significantly, with Solana (SOL) leading the decline with a weekly drop of 28% and a high-to-low drop of 43%. Others are experiencing high volatility and market capitalization erosion. Bitfinex has urged investors to be more cautious because some altcoins may not survive the market correction.

Meanwhile, approximately $1.16 billion has been wiped from the crypto market over the past day due to the rapid price drop, with $982.4 million and $180.51 million in long and short liquidations, respectively.

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