Bitcoin (BTC) being 95% correlated with the S&P 500 may haunt traders this week as one analyst warned a 400-point crash could soon hit.
In the latest episode of his Trading Bitcoin YouTube series, Tone Vays focused on Bitcoin falling in line with stocks.
Bitcoin decoupling in jeopardy
BTC/USD dipped on June 25 as markets broadly lost on the back of fresh coronavirus infection worries.
Despite bullish news for Bitcoin this week, the largest cryptocurrency’s close correlation to stock markets returned to the spotlight as bearish pressure mounted. At press time, BTC/USD had staved off a dip below $9,000 to circle $9,200.
Theories had long claimed that Bitcoin was “decoupling” from macro influences until this week — despite data similarly showing the extent of correlation in particular with the S&P 500.
Along with the rise in infections, markets were also troubled by above-forecast unemployment data from the United States, Bloomberg reported on Thursday — 1.48 million weekly.
“Like I’ve been saying for months now, I have no reason to walk away from my prediction early in the year that Bitcoin is going to get stuck between $6,000 and $10,000 for the majority of this year.”
Bitcoin vs. S&P 500 3-month chart. Source: Skew
Vays eyes $7,000 BTC price floor
On a technical level, concerning for Vays was Bitcoin’s daily relative strength index (RSI), while the BitMEX funding rate, which typically runs contrary to market indicators, was flashing bullish on Thursday.
“Right now, the BitMEX funding rate is favoring the bulls, saying that traders on BitMEX are a little bit overzealous to the downside,” he continued.
The RSI breaking below a long-term trendline in June came at the same time as higher Bitcoin price levels compared to May — a notable divergence, says Vays.
Should bears win out, a potential low for BTC/USD should lie in the $7,000 zone, with an RSI of around 30, he added.
For stocks, the outlook was bleak — the absence of a firm support zone could send the S&P 500 crashing by 400 points, or 12%, in the event of a weak close.
Previously, different analysis warned that this month would set the scene for a mass stock market correction event.