Bitcoin’s BTC Downturn: How the $1 Trillion Stock Market Loss is Impacting Crypto

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Bitcoin dropped over 2% as the US stock market lost $1 trillion, showing its rising correlation with traditional assets.

The decline, coupled with historically weak September performance and bearish indicators, signals potential challenges for the cryptocurrency.

Bitcoin (BTC) saw a notable decline of over 2% on Tuesday, mirroring the downturn in the US stock market, which shed more than $1 trillion in market value. The dramatic drop follows a dismal performance across the “Magnificent 7” stocks—Apple, Nvidia, Amazon, Meta, Microsoft, Alphabet, and Tesla—which collectively lost over $550 billion in capitalization within just 24 hours, according to The Kobeissi Letters.

This is not the #crypto market,

It’s the US stock market.

More than $1.05 trillion has been wiped out from the US stock market today. pic.twitter.com/FnUlkyh3L0

— Evan Luthra (@EvanLuthra) September 3, 2024

This sweeping stock market decline has had a palpable effect on the cryptocurrency market. Bitcoin, along with several other top 20 cryptocurrencies, experienced a daily loss of around 3.6%, highlighting its growing correlation with traditional financial markets. This trend is a departure from Bitcoin’s historical role as a safe haven during stock market turbulence. The influx of traditional investors into the crypto space, particularly with the introduction of Bitcoin ETFs, has blurred the lines between traditional and digital assets.

September’s Curse: Historical Trends Recur

The timing of Bitcoin’s decline is noteworthy, as September has traditionally been a weak month for the cryptocurrency. Historically, Bitcoin’s performance in September has been dismal, with an average loss of 4.5% and a median loss of 4.35%. This pattern aligns with the S&P 500’s trend, which also marks September as its worst-performing month over the past 30 years.

#September has historically been the WORST month for the S&P500 over the last 30 years

Also around the rest of the world

1st day of trading already indicating a tough month ahead #StockMarket $spy pic.twitter.com/g3GdSfbFlO

— Susan Li (@SusanLiTV) September 3, 2024

Stablecoin Supply and Market Sentiment

Interestingly, the crypto market has seen an increase in stablecoin supply, a typically bullish signal. However, CryptoQuant analysts have observed that much of this new capital has yet to be deployed effectively. “Much of the capital that is being allocated to stablecoins remains without providing buying pressure on the order books,” the analyst noted. This unutilized capital, or “firepower,” could potentially enter the market at any moment, but it appears institutional investors might be using strategies like TWAP orders or algorithms to minimize short-term price impacts.

Bearish Indicators and Market Shifts

Bitcoin’s outperformance on risk adjusted returns is being challenged.

Over the last twelve months Meta and even Gold are catching up to it.

Bitcoin is still lacking a sense of direction after the launch of the ETFs at the start of the year. pic.twitter.com/PUi449z6WA

— ecoinometrics (@ecoinometrics) September 2, 2024

In the midst of these developments, Bitcoin’s weak price action has allowed other assets like Meta stock and Gold to challenge its status as a top-performing asset in terms of risk-adjusted returns. Additionally, the BTC MVRV Z-Score has turned red, signaling a bearish sentiment in the market. An extended period of this bearish metric could indicate the onset of a potential bear market for Bitcoin.

As Bitcoin continues to navigate these turbulent waters, investors will need to stay vigilant and monitor both traditional and digital market indicators to make informed decisions.

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