BTC has dropped 3% in the last 24 hours, putting it on course to close the month in the red.
After nearly nine weeks of negative returns, crypto traders are still on the defensive. Although BTC has regained 10% from its current low of $25,840 on May 12, it remains down 27% this month.
The cryptocurrency is still down 40% this year, compared with a 13% drop in the S&P 500 and a 22% drop in the Nasdaq 100 over the same time period. All speculative assets have had a difficult year so far.
In recent weeks, there has been a lot of short selling, which could lead to a short squeeze in the coming weeks. The month-end moves may also be beneficial "Head of institutional research at Coinbase, David Duong, wrote in a newsletter on Friday.
On the macro front, MRB Partners, a global investment research firm, expects equity markets to rally if global growth conditions remain resilient, while interest rate expectations and bond yields are likely to remain quiet for a while, as inflation temporarily declines, first in the United States and then elsewhere. Central banks, in turn, are likely to temporarily cool their newfound hawkishness "In an email, MRB stated.
If the significant connection between the two assets maintains intact, the short-term advance in equities might be a tailwind for cryptocurrencies. The decrease in cryptocurrencies, on the other hand, could indicate that the stocks rise is limited as low-risk attitude persists.
●Bitcoin (BTC): $28,940, -1.83%.
●Ether (ETH): $1,760, -4.35%
●S&P 500 daily close: 4.158, +2.47%
●Gold: $1,857 per troy ounce, +0.51%
●Ten-year Treasury yield daily close: 2.74%.
For the time being, volatility is decreasing.
The graph below depicts BTC's short-term implied volatility's recent drop. This indicates that when BTC temporarily dipped below $28,000 on Thursday, options traders expected price volatility to settle.
Bitcoin is currently trading in a narrow range as volatility has returned to normal levels. On a six-month basis (second chart), implied volatility is elevated, and put demand (downside protection) has outpaced call demand.
Prices may stabilize in the short term. Over the last two weeks, there has been a lot of short selling, which could mean more pressure in the coming weeks. In the event of stronger global growth conditions, equity markets are expected to return, assuming that interest rate expectations and bond yields remain stable for a period of time, which is plausible given that inflation will temporarily slow down, first in the US and then globally. In turn, central banks will temporarily temper their newfound hawkishness.
If the significant correlation between the two assets maintains intact, the short-term rise in equities might be a positive for crypto. However, as risk-off sentiment lingers, the decrease in cryptos may suggest limited gains in stocks.