Tech
Bitcoin and Technology Correlation Collapses Due to Excess Supply
(Bloomberg) — After trading nearly in tandem in recent months, bitcoin’s correlation with rising U.S. stocks is collapsing under the weight of too much supply and too little demand for the cryptocurrency.
Bloomberg’s Most Read
The 90-day correlation coefficient between Bitcoin and the tech-dominated Nasdaq 100 index fell to 0.21 on Tuesday, its lowest level since early May. It has fallen more than 50% in the two months. A coefficient of 1 means the assets are moving in tandem, while minus 1 would mean they are moving in opposite directions.
“Bitcoin is experiencing a glut of idiosyncratic supply events, including spot sales of seized coins held by the German and U.S. governments and distributions from the Mt. Gox estate,” said Joshua Lim, co-founder of trading firm Arbelos Markets. “This has capped the upside even as other risk assets are trading at all-time highs.”
Bitcoin’s decline from its March high accelerated last week after Mt. Gox administrators began the process of returning about $8 billion in tokens to creditors. At the same time, German police began selling some of the 50,000 bitcoins they had earlier seized from a piracy website.
“The token oversupply is expected to reach centralized exchanges in the coming days, likely putting pressure on prices,” said Manuel Villegas, Next Generation research analyst at Julius Baer. “The impending oversupply was the main factor impacting sentiment.”
Meanwhile, Bitcoin miners are forced to sell off their tokens to cope with declining profitability.
The power-hungry computer operators that underpin the Bitcoin blockchain continue to absorb the financial blow of the so-called April halving, which has dampened the new tokens they receive for the work they do. One response from these Bitcoin miners is to sell off some of their token inventory.
“Bitcoin miners have a problem when prices drop because their cost base is fiat-based; the average overall cost of production for Bitcoin miners, by our estimates, is close to $54,500,” Villegas said. “When prices drop significantly below this threshold, miners may have to liquidate some of their token inventory to cover their fiat-based costs.”
Bitcoin was virtually unchanged at around $57,070 on Tuesday, down about 22% from its all-time high of $73,798 reached in March.
The story continues
Bloomberg Businessweek’s Most Read
©2024 Bloomberg L.P.