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Market Turbulence Impacting Cryptocurrency
The recent instability in the stock exchanges of Japan and the United States has led to increased fluctuations in the cryptocurrency market. This situation underscores the close ties between global financial markets and the rising connection between Bitcoin and traditional finance (TradFi).
Potential for Further Bitcoin Declines
Recent economic and political events have created a ripple effect across various markets, resulting in heightened volatility. The Japanese stock market’s Topix index has experienced its most significant drop over two consecutive days since the devastating tsunami in 2011, falling by 9.2% in this timeframe, beginning with a 6.1% decline on Friday.
According to insights from Bitfinex, the unexpected interest rate increase by the Bank of Japan on Wednesday, coupled with Governor Kazuo Ueda’s assertive stance, has contributed to this downturn, leading to substantial corrections in what was once one of the strongest global markets.
Similarly, the decline on Wall Street commenced on Friday, as U.S. stocks and Treasury yields plummeted to their lowest levels in several months. This drop was prompted by a disappointing jobs report, concerns surrounding the Federal Reserve’s potential delay in interest rate cuts, and heightened fears of an economic downturn. The S&P 500 index has now closed in the negative for three consecutive weeks, marking the fourth time since the bear market lows of 2022, with analysts observing a decline of approximately 6.5% from peak to trough.
Implications for Bitcoin and Risk Assets
The report from Bitfinex indicated that, since mid-July, Bitcoin (BTC) and the S&P 500 (SPX) have shown a positive correlation, suggesting that this trend may continue. The oscillating nature of their relationship could result in a heightened correlation among risk assets moving forward. However, if the stock markets continue to experience downward trends, Bitcoin may also face increasing selling pressure in such an environment.
Challenges Facing Altcoins
As Bitcoin approaches its lowest price point since mid-February, the risk of further declines looms large, particularly for altcoins, which are likely to bear the brunt of the downturn. Many altcoins have already shown significant declines, with Solana (SOL) leading the way with a staggering 28% drop over the week and a total fall of 43% from its peak.
Other altcoins are also facing severe price fluctuations and diminishing market capitalizations. Bitfinex has advised investors to exercise heightened caution, as some altcoins may not withstand the ongoing market correction.
In the past day alone, approximately $1.16 billion has evaporated from the cryptocurrency market due to the rapid price declines, comprising $982.4 million in long liquidations and $180.51 million in short liquidations.
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