Bitcoin Sees Little Boost From Fitch Downgrade, Slumps on Binance Contagion

Correlations between movements in the crypto and stocks have turned negative of late.

AccessTimeIconAug 2, 2023 at 7:48 p.m. UTC
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  • Bitcoin falls on a report that DOJ officials have concerns about a run on exchanges in the event of criminal charges against Binance.
  • Prior to that story, cryptos had failed to see much of a boost from Fitch’s downgrade of the U.S. credit rating on Tuesday evening.
  • Once strong positive correlations between bitcoin and the stocks have vanished and turned negative.

After failing to see a sustained bounce on the back of a downgrade to the U.S. credit rating by Fitch yesterday, bitcoin (BTC) tumbled into the red Wednesday afternoon following a Semafor report about U.S. Department of Justice (DOJ) officials’ concerns regarding the possible fallout from charges against crypto exchange Binance.

Bitcoin fell more than 1% to below $29,000 in the minutes following the news hitting. A modest recovery since has brought the price back to $29,100, lower by 0.3% over the past 24 hours.

CoinDesk Market Indices (CMI) sectors reflected the downturn as well. The broad CMI is lower by 1%, with the Digitization Sector down by 2.3% and the DeFi sector off 3%. Performing best is the Computing Sector, down just 0.50%.

CMI Sectors 08/02/23 (CoinDesk Indices)

Traditional markets are down sharply following the Fitch downgrade, led by the Nasdaq’s 2.3% loss. Also at issue in tradfi is the continued strong employment picture, with this morning’s ADP jobs report for June showing 324,000 jobs added, nearly doubling economist forecasts. That’s helped send the 10-year Treasury yield higher by five basis points to 4.08%.

Key drivers of Fitch’s rating downgrade included expected fiscal deterioration, an increasing U.S. debt burden, and the “erosion of governance” relative to peers.

The news on Binance comes during a period when few factors have been able to move bitcoin’s price substantially. A look at BTC’s hourly chart shows that the troubled exchange’s potential charges changed that. Bitcoin fell sharply on higher than average volume, following the report. While prices have retraced slightly since, it’s been on lower volume totals.

Not surprisingly, Binance’s native token, BNB Coin, had an even more pronounced move downwards, falling as much as 4%, also on higher than average trading volume.

While cryptocurrencies and tradfi markets both wrestled with their own bearish catalysts, their movements with respect to each other continue to morph. What last year was a strong correlation between the two, at one point this year shifted to very little correlation, to currently an inverse correlation.

Correlation coefficients range between 1 and -1, with the former indicating a direct pricing relationship, and the latter implying an inverse relationship. BTC’s correlation with the S&P 500 has fallen to -0.70, while its correlation with the DJIA has dropped to -0.85. Also of particular note is bitcoin’s declining correlation with the U.S. dollar, down to -0.82 currently from 0.03 on July 23.

While the decline in correlations with TradFi is worth noting, it's worth remembering that the gauge can be quite volatile. The coefficient has ranged from as high as 0.91 to as low as -0.70 over the past year.

Edited by Stephen Alpher.


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Glenn Williams

Glenn C Williams Jr, CMT is a Crypto Markets Analyst with an initial background in traditional finance. His experience includes research and analysis of individual cryptocurrencies, defi protocols, and crypto-based funds. He owns BTC, ETH, UNI, DOT, MATIC, and AVAX

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