Bitcoin (BTC) Can Fall Another 20% Due to Its Correlation With S&P 500

Following the higher-than-expected CPI inflation data on Tuesday, Bitcoin and the broader crypto market witnessed a sharp fall. Currently, Bitcoin is trading at 8.4% over the last 24 hours holding just above its crucial support of $20,000.

Bitcoin’s price crash came alongside that of the S&P 500 dropping 4.5% and slipping under $4,000. As on-chain data provider Santiment explains:

After a brutal #CPI report on disappointing inflation news Tuesday, #Bitcoin fell alongside the #SP500‘s biggest daily drop in two years. The correlation between the sectors remains high, and #crypto typically thrives best with zero #equity reliance.

As we know, Bitcoin has been showing a greater correlation with the S&P 500 here. As long as Bitcoin continues to follow the equity markets it is likely to stay in the bear’s grip going ahead.

Bitcoin (BTC) Can Correct Another 20%

If BTC continues to follow its correlation with S&P 500, another 20% drop to $16,000 is very much likely. Jurrien Timmer, director of global macro at Fidelity said:

If a 14x forward multiple is the correct valuation, then simple math will tell us that the fair value for the S&P 500 is 3200-3400 at an EPS of $230. This suggests that this bear market is not yet over.

Just as the news of U.S. CPI inflation came on Tuesday, the Bitcoin Fear & Greed Index slid from 34/100 to 27/100. However, it has still not entered the “extreme fear” zone which shows some kind of investor resilience at this point.

Once again the news of inflation prevents Bitcoin from crossing its 200-day moving average (DMA), a zone of crucial resistance for Bitcoin this year.

Along with Bitcoin, several other altcoins have also corrected. A day ahead of the Merge event, Ethereum (ETH) has once again tanked 7% moving to $1,600 levels. As the Merge approaches closer, ETH has come under some selling pressure by following “sell the news” kind of momentum.

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Bhushan Akolkar

Bhushan is a seasoned crypto writer with over eight years of experience spanning more than 10,000 contributions across multiple platforms like CoinGape, CoinSpeaker, Bitcoinist, Crypto News Flash, and others. Being a Fintech enthusiast, he loves reporting across Crypto, Blockchain, DeFi, Global Macros with a keen understanding in financial markets.   He is committed to continuous learning and stays motivated by sharing the knowledge he acquires. In his free time, Bhushan enjoys reading thriller fiction novels and occasionally explores his culinary skills. Bhushan has a bachelors degree in electronics engineering, however, his interest in finance and economics drives him to crypto and blockchain.

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