How Bitcoin’s strong correlation to stocks could trigger a drop to $8,000

The Bitcoin (BTC), price chart for the past few months is nothing but a bearish outlook. It’s not hard to see that Bitcoin has made lower lows than $48,000 in March, and it’s clear that Bitcoin (BTC), has been making lower lows ever since.

Bitcoin price in USD Source: TradingView

Curiously, as investor confidence and risk appetite continue to decline, the gap in support levels has become wider. The $19,000 support level is now almost $10,000 below the previous one. If the same thing happens, then the next logical price level is $8,000.

Fear of regulation and contagion is a major concern for traders

The Financial Stability Board (FSB), a global regulator that includes all G20 countries, announced on July 11 that a framework with recommendations for the crypto industry was planned for October. According to the FSB, international regulators must supervise crypto markets according to the principle of “same activities, same risk, and same regulation.”

Jon Cunliffe (Deputy Governor for Financial Stability at the Bank of England), stated that crypto was somehow over and should not be considered a concern in a speech written on July 12. Cunliffe said that innovation must be done within a framework where risks can be managed.

Investors have not yet been able to determine the losses from crypto lenders Celsius or Voyager Digital deposits. Both firms are still seeking either bankruptcy protection or a recovery plan. Voyager claims that the company still has $650 million in “claims against Three Arrows Capital,” which means that the exact number of customer assets is unknown.

CME’s Bitcoin futures contract premium reflects the negative newsflow. This data shows the difference in spot prices in regular markets and longer-term futures contracts.

This indicator should be considered a red flag if it becomes negative or fades. This is known as “backwardation” and it indicates that there is bearish sentiment.

BTC CME 1-month forward contracts premium vs. Coinbase/USD. Source: TradingView

Fixed-month contracts trade at a slight premium. This indicates that sellers are asking for more money to hold settlement for longer periods of time. Futures should therefore trade at a premium of 0.25% to 0.75% in healthy markets. This is known as contango.

The indicator is now below the neutral range since April. This is because Bitcoin has failed to maintain levels above $45,000. Although it is still a bearish structure, the data suggests that institutional traders are not willing to open leverage long positions.

Investors are discouraged from trading crypto due to macroeconomic concerns

The long-to-short net position of traders is highlighted by exchange-provided data. It is possible to determine whether professional traders are bullish or bearish by analyzing the position of every client on spot, perpetual, and futures contracts.

Sometimes there are discrepancies between the exchanges’ methodologies. Therefore, viewers should be able to monitor these changes and not just absolute numbers.

Top traders in Bitcoin short-to-long ratio at exchanges Source: Coinglass

Top traders have increased their leverage longs despite Bitcoin’s 11% correction between July 9 and 12. Binance’s long-to-short ratio remained stable at 1.13. Huobi’s top traders started at 0.95, and ended the period at 0.93. This was compensated for by OKX traders increasing bullish bets to 1.09 from 1.32.

Related: Why is ‘Bitcoin Crash” trending?

It is not worrying that there is no premium in the CME futures contract, as Bitcoin is facing $20,000 resistance. Top traders on derivatives exchanges have increased longs despite the 11% price fall in just three days.

The Federal Reserve is unlikely to ease its regulatory pressure in the near future. However, it can’t do much to curb inflation without creating an economic crisis. Pro traders aren’t rushing to purchase the dip, as Bitcoin’s correlation with traditional assets is high.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.