Bitcoin’s relationship with TradFi markets is increasing, what does this mean?

The ongoing turmoil in the stock markets of Japan and the United States has sparked high volatility in the crypto space. This shows the interconnectedness of global markets and Bitcoin's connection to traditional financial (TradFi) markets.

Analysts at crypto exchange Bitfinex explained in a new Alpha report that Bitcoin's increasing correlation with TradFi markets could signal a downward spiral for the digital asset if the stock market's decline continues.

Bitcoin may fall further.

Economic and political developments affecting all markets caused widespread uncertainty, with Japan's stock market's Topix index posting its biggest two-day drop since the 2011 tsunami. The index is down 9.2% over the past two trading days, starting with a 6.1% drop on Friday.

Bitfinex said on Wednesday that the Bank of Japan's unexpected rate hike and Governor Kazuo Ueda's hawkish tone triggered a sharp correction in one of the world's best-performing markets.

Similarly, Wall Street's losses began Friday, with U.S. stocks and Treasuries falling to multi-month lows after a disappointing jobs report, the Federal Reserve's delay in interest rate cuts and fears of an economic slowdown. The S&P 500 closed in the red for the fourth straight week since its 2022 bear market low. Analysts pointed to a roughly 6.5% peak-to-bottom decline.

“BTC and SPX have been positively correlated since mid-July, so we expect the oscillating nature of the correlation to play out and the correlation between risk assets to increase going forward. However, if the stock market continues to hold lower levels, it is increasingly likely that BTC will continue to face downward pressures in such a scenario,” the report said.

Some Altcoins may not survive

With bitcoin hitting its lowest price since mid-February and still facing the risk of further declines, Bitfinex analysts think altcoins could suffer more.

Altcoins are already down significantly, led by Solana (SOL) with a weekly decline of 28% and a peak-to-trough fall of 43%. Others are experiencing high volatility and market price erosion. Bitfinex urges investors to exercise caution as some altcoins may not survive a market correction.

Meanwhile, nearly $1.16 billion was wiped out of the crypto market due to the rapid price decline in the last day or so, with $982.4 million and $180.51 million in long and short liquidations, respectively.