Why has BTC been weak recently and deviated from the trend of the US stock market?

Author: BitPush

The correlation between the US stock market and Bitcoin has always been high. Why have Bitcoin and the US stock market developed different trends in the last two days? Bitcoin’s sharp decline on October 9 may be related to the new HBO documentary “Cryptocurrency: The Mystery of Bitcoin.” What are the underlying reasons? Given “Golden September and Silver October,” Can Bitcoin Launch an Offensive in October? The author believes that while there are indeed many positive signs, overall some unexpected events could hamper Bitcoin’s rise in October and caution is still warranted.

Bitcoin and US Stock Market Diverge Again; The cooling of A shares could contribute to the return of capital

The correlation between Bitcoin and the US stock market has always been high, but in the last two days there has been another divergence. In the early hours of October 10, US stocks closed higher on Wednesday, with the Dow Jones and S&P 500 indexes both hitting record highs. Bitcoin has seen a continuous decline amid US stocks hitting new highs. What is the reason for this?

The global financial market is like a pool of water; Where there is a profit effect, it becomes a gathering place for capital. There are clear signs that capital is fleeing the crypto market into the A-share market. Recently, a wave of wealth creation in the A-share market has swept the globe. On October 8th, the trading volume of the Shanghai and Shenzhen stock exchanges broke through the 3 trillion yuan mark for the first time in history, reaching 3.45 trillion yuan, a significant increase of over 800 billion yuan compared to September 30th. Almost all sectors increased, including brokers and semiconductors are experiencing a collective upswing. The market registered a broad uptrend: 5,029 stocks rose, 791 stocks reached the daily limit and 291 stocks fell. Even more rare this morning, hundreds of broad-based ETFs reached their daily limit as ETF market transactions increased. The latest weekly data from global capital flow monitoring agency EPFR shows that emerging market equity funds monitored by EPFR recorded their second-largest weekly inflows this year in the week ended October 2, marking the 18th consecutive week of net inflows. Almost all of these funds are flowing into the Chinese market. David Skarica, senior strategist at Gain Capital, told reporters that money flow is always crucial and global investors currently have relatively small positions in the Chinese stock market. Citing channel data from Goldman Sachs, he noted that while hedge funds have rapidly increased their exposure to the Chinese market recently, it is still at the 55th percentile of the five-year range, up from the 91st percentile in January 2023 , that sudden market changes may cause foreign capital to further increase its allocation to the Chinese stock market.

In addition to the continuous inflow of funds, positive measures have also been consistently introduced in China. Most people in the A-share market believe that this will lead to an unprecedented bull market. In addition to the two structural monetary policy tools introduced by the central bank to implement the new “Nine National Policies”, the China Securities Regulatory Commission issued “Opinions on Deepening the Reform of the Merger and Acquisition Market for Listed Companies” on September 24, “the vitality of the to further boost the mergers and acquisitions market and help listed companies provide high-quality assets to enhance investment value; The “Guideline on Supervision of Listed Companies No. 10 – Market Value Management (Draft for Comment)” has been sought for public comment and requires listed companies to improve their quality as a basis for promoting the increase in investment value. In addition, on September 26, the Central Financial Office and the China Securities Regulatory Commission jointly issued “Guiding Opinions on Promoting the Entry of Long-Term Capital into the Market”, aiming to remove the obstacles to the entry of social security, insurance and asset management funds into the market and strive to stimulate the capital market.

Currently, the A-share market is considered an investment haven in the global financial market and shows clear signs of capital inflow, which has also led to a noticeable capital flight from the crypto market. This is particularly reflected in USDT’s ongoing negative premium and Bitcoin ETF fund outflow. However, due to the recent rise in A-shares, the market is witnessing a correction and A-shares are expected to undergo an adjustment period that could slow down the outflow of capital from the crypto market. Nevertheless, given the current low valuation of A-shares, it cannot be ruled out that capital will continue to flow out of the crypto market or investments in crypto assets will decline, which would undoubtedly be detrimental to the rise of Bitcoin.

Possible sale by the US government could weigh on Bitcoin

Since June of this year, there has been a major sell-off in Bitcoin from the German government, the US government, and sequential selling pressure from Mt. Gox remuneration. More recently, expectations of US government selling pressure could also become a potential drag on Bitcoin. According to Lookonchain, the US government appears to be free to sell 69,370 Bitcoins seized from Silk Road. On October 7, the US Supreme Court refused to hear the case regarding the ownership of the 69,370 BTC (approximately $4.33 billion) seized from Silk Road, leaving the government in complete control of the seized funds.

The author believes that the Biden administration may not be very friendly towards the crypto market and the US government is likely to sell out. The last time the US government sold 29,800 BTC (approximately $2.02 billion) was two months ago, of which 10,000 BTC (approximately $594 million) were transferred to Coinbase Prime. Currently, the market is also worried about the crypto prospects if Democratic candidate Kamala Harris wins. Bernstein analysts stated that if Kamala Harris wins, Bitcoin could test $40,000 again.

In addition to the potential selling pressure from the US government, the new HBO documentary “Cryptocurrency: The Mystery of Bitcoin” may also have caused some market panic and become a major reason for Bitcoin’s decline on October 9th. This new HBO film, directed by renowned director Cullen Hoback, known for his investigative work, primarily attempts to uncover the identity of Satoshi Nakamoto, which has attracted great attention in the market. Currently, Bitcoin held by Satoshi Nakamoto is worth $68 billion, which is a huge number. It would certainly be an exciting event for the market if this person is actually confirmed as the founder of Bitcoin, but for the market this may not necessarily be the case.

The HBO documentary has sparked considerable controversy. Cullen Hoback believes that there is substantial evidence that Peter Todd is Satoshi Nakamoto, but many crypto market professionals disagree. Some experts point out that HBO misstated Peter Todd’s timeline throughout the documentary, mistakenly believing he was Satoshi Nakamoto; In fact, Peter Todd was not even 16 years old in 2008, which is inconsistent with age, and his life and experiences are very different from what is known about Satoshi Nakamoto. Additionally, Todd has served as a long-time consultant on several projects. If he was actually Satoshi Nakamoto, his Bitcoin wallet wouldn’t have remained completely inactive for so many years. Peter Todd himself is also very dissatisfied and has publicly denied being Satoshi Nakamoto, repeatedly stating on social media that Hoback’s theory is absurd.

Golden September and Silver October? Bitcoin still needs technical drivers

Although Bitcoin has shown weakness recently, the market remains optimistic about its future trajectory. Besides the Fed’s interest rate cuts, the most important evidence is the growth of USDT’s market cap.

Data from CryptoQuant shows that stablecoin liquidity continued to rise to a record $169 billion at the end of September, up 31% year-to-date (YTD). The market is dominated by Tether’s USDT, whose market capitalization increased by $28 billion to nearly $120 billion, accounting for 71% of the market share; Circle’s USDC market cap also increased by $11 billion to $36 billion, up 44% year-to-date and accounting for 21% of the market share. The record number of dollar stablecoins and the increase in large Bitcoin transactions could lay the foundation for a broader rise in BTC in the coming weeks, keeping the bullish seasonal trend for the asset intact in October.

The author believes that the bullish expectations for A-shares are very obvious and the global financial market continues to speculate on A-shares expectations, which will essentially lead to capital outflows or reduced investments in the crypto market. In addition, the outcome of the US election will be a key influencing factor. If Trump is elected, his positive attitude towards cryptocurrencies will undoubtedly provide a direct incentive for Bitcoin; However, if Harris is elected, the outcome for Bitcoin is uncertain and further deep corrections cannot be ruled out, which will be seen in November. Overall, the author maintains a cautious stance on Bitcoin’s performance in October. Longer-term, the crypto market continues to need technical drivers as financial incentives alone are unlikely to create sustainable prosperity.