The ‘Correlation-1’ Effect: Bitcoin and Stocks Fall in Tandem
The stock and crypto markets experienced significant volatility in the first week of August, triggered by a “correlation-1” event, resulting in a major sell-off. Bitcoin (BTC) witnessed its steepest price drop of the cycle, sparking a cautious sentiment among short-term holders.
On August 5th, global markets dipped sharply amid the unwinding of the yen carry trade and fears of a recession, which boosted US treasuries. As a result, Bitcoin’s price plummeted by 32% from its all-time high – a record in the current cycle.
The Mayer Multiple, which compares the current Bitcoin price to the 200-day moving average (200DMA), illustrates the severity of this price contraction. With the current Mayer Multiple at 0.88, Bitcoin is at its lowest point since the FTX collapse in late 2022.
Furthermore, Glassnode, the on-chain market intelligence platform, provided valuable insights into the impact of the recent sell-off. Data shows the Short-Term Holder Cost Basis is $64,300, while the -1SD band is $49,600. The spot price approached this -1SD band, a rare occurrence historically, emphasizing the rapid market decline.
Moreover, the Short-Term Holder MVRV, measuring unrealized profit or loss among new Bitcoin investors, reveals the largest loss since the FTX collapse. Only 7% of Short-Term Holder Supply is profitable, indicating significant financial stress among recent buyers.
The True-Market Mean ($45.9k) and Active Investor Price ($51.2k) estimate the average cost basis for active investors. The spot price finding support near these levels indicates potential buy-side support. A decisive break below these levels could signal a shift towards a bear market, with many investors facing losses.
The market downturn led to about $1.38 billion in realized losses, historically the 13th largest in USD terms, with short-term holders accounting for 97% of this figure.
In the derivatives market, $275 million worth of long positions and $90 million of short positions were liquidated, totaling $365 million. This led to a significant reduction in futures open interest, suggesting a market reset.
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