Bitcoin’s Correlation with US Equities Collapses Under the Weight of Too Much Supply

After trading almost in tandem in recent months, Bitcoin's correlation with surging US equities is collapsing under the weight of too much supply

Bitcoin’s close tracking of surging US equities has faltered in recent months amid a wave of token sales by German and US authorities, as well as distributions from the bankrupt Mt. Gox exchange.

The 90-day-correlation coefficient of Bitcoin and the tech-heavy Nasdaq 100 index dropped to 0.16 on Monday, the lowest level since early May. It has declined by more than 55% in the two months. A coefficient of 1 means the assets are moving in lockstep, while minus-1 would show they’re moving in opposite directions.

“Bitcoin is experiencing overhang from idiosyncratic supply events — including spot sales from seized coins held by the German and US governments and the distributions from the Mt. Gox estate,” said Joshua Lim, co-founder of trading firm Arbelos Markets. “This has put a cap on upside even while other risk assets trade at all-time highs.”

Bitcoin’sراجع النص الأصلي to close tracking of the Nasdaq began to unravel in June as German police started selling some of the 50,000 Bitcoin it had seized earlier from a piracy website. At the same time, Mt. Gox’s administrators started the process of returning about $8 billion worth of the token to creditors.

“Excess token supply is expected to reach centralized exchanges in the next few days, likely putting pressure on prices,” said Manuel Villegas, Next Generation research analyst at Julius Baer. “The looming supply overhang has been the main factor affecting confidence.”

Bitcoin miners, meanwhile, are also facing pressure to sell tokens to cope with evaporating profitability.

The operators of the power-hungry computers that underpin the Bitcoin blockchain are continuing to absorb the financial hit of April’s so-called halving, which curbed the new tokens they receive for the work they do. One response from these Bitcoin miners is to sell some of their inventory of tokens.

“Bitcoin miners have a problem when prices drop, as their cost base is fiat-based; the average all-in-all cost of production for Bitcoin miners, according to our estimates, is close to $54,500,” Villegas said. “When prices drop significantly below this threshold, miners might need to liquidate some of their token inventories to cover their fiat-based costs.”

Bitcoin was trading flat on Monday at around $56,940, down about 23% from an all-time high of $73,798 reached in March.