Bitcoin is Stuck But its Correlation with Equities Is Increasing, Real Yield at Historic Low May Bring in Big Investors

Bitcoin is still up over 100% YTD and Ether 469%, while the total crypto market cap is holding on to its 116% gains from July low. MVRV ratio is currently low as well, at about 2.1.


The crypto market continues to feel the weakness that was first seen on Monday. Late on Tuesday, Bitcoin price fell as low as $58,570 and Ether to almost $4,055.

Crypto assets are still struggling to recover from the losses, with the total crypto market cap further sliding under $2.7 trillion today.

“After several days of gains, which saw Bitcoin hover near its all-time high as many other altcoins managed to reach new highs, we are seeing a significant pullback,” said Walid Koudmani, an analyst at XTB Market.

“The extreme volatility that the market is prone to could lead to a potential domino effect if more negative news were to emerge and take prices to new lows.”

Some market participants attribute the dip to the new tax reporting requirements for cryptocurrencies as part of the infrastructure bill signed into law by President Joe Biden on Monday. The bill includes an overreaching definition of ‘broker’ covering node operators and even developers to report information on their customers.

“While many have dismissed this as priced-in and somewhat nominal, seemingly innocuous tax measures have been notorious for marking highs in bull markets,” said QCP Capital.

According to QCP Capital, another potential reason for the pullback includes US inflation printing at 6.2%, the highest since November 1990, which has created a ‘risk-off sentiment across global markets.

The SEC is rejecting VanEck’s physical Bitcoin ETF proposal, disappointing reaction to the successful BTC taproot upgrade, and China’s National Development and Reform Commission reiterating their firm no-crypto stance are other reasons.

“Overall, we’ve turned quite neutral after this awaited leverage wash-out. We expect BTC to be stuck around 60,000 given the strike gravity. And perhaps more volatility in ETH and Altcoins,” said QCP Capital.

Still, Bitcoin is up more than 100% YTD and Ether 469%, while the total crypto market cap is holding on to its 116% gains from July low.

Amidst all this, Bitcoin’s correlation with equities continues to increase over the past few months, after falling to close to 0 earlier in 2021, as bitcoin increasingly responds to news from the Fed, as per Coin Metrics.

Historically, digital gold has been mostly uncorrelated with the S&P 500, but the correlation jumped to an all-time high last year following the global onset of COVID-19. But even then, it peaked at 0.48, so it never grew particularly strong.

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The positive thing right now is Bitcoin’s free-float market value to realized value (MVRV) ratio is currently relatively low despite hitting a new ATH at $69,000 last week.

MVRV has historically been one of the most reliable on-chain indicators of bitcoin market tops and bottoms, which during previous cycles marked a top at 3.0 or above, and below 1.0 has indicated the bottom of the cycle. Currently, the free float MVRV is about 2.1.

Additionally, the Fed’s accommodative monetary policy and surging prices have pushed real yields, which are inflation-adjusted, into negative territory over the past 19 months.

Bitcoin vs US Real Yields

Real yield at historic low means long-asset allocators face challenges in terms of expected returns and risk.

“With pension funds flush with cash and growing inflation worries, asset managers may start looking to diversity into riskier alternatives (such as crypto),” noted data provider Kaiko’s latest report.

Last month, we saw the Houston Firefighters’ Relief and Retirement Fund becoming the first U.S. public pension plan to invest directly in BTC and Ether.

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