Bitcoin recorded one of its greatest single-day loss last Thursday, March 12, after its price plunged by over 50%. The huge decline was a result of a massive sell-off in the bitcoin market triggered by concerns of an impending global economic crisis due to the mass spread of the coronavirus epidemic. The selling pressure was market-wide with other cryptocurrencies also recording huge price declines of around 30% in the past week.
Bitcoin performance correlation
Notably, Bitcoin’s price action had a huge semblance to the mainstream financial market with a strong similarity between their performances. This was highly unusual, as the crypto market has traditionally remained uncorrelated to the equities markets most of the time.
According to a coinmetrics review, the Pearson correlation index between BTC and S&P 500 rose to a new all-time high of 0.52 on March 12 thus indicating how strongly intertwined the two markets had become. This figure was way above the previous all-time high of 0.32 thus proving the BTC market had become more susceptible to external market events than before.
Bitcoin selloff was driven by new market entrants
A deep dive review of the causes of this strong correlation proved that there was a concurrent mass selloff in both the crypto and equity markets. On-chain data reveals that a significant proportion of the Bitcoin selloff was from relatively new addresses. According to an analysis posted on twitter by Unchained Capital, the majority of the price volatility was driven by transactions from accounts that were 6 months old or younger.
Additional analysis by coinmetrics also arrived at similar findings with the supply tracks showing only about 281,000 BTC that had remained untouched over the last thirty days were revived. The figures were much lower for those bitcoins that had remained untouched for over a year with only 4,131 BTC being revived on March 11.
The results indicate that a huge proportion of the trading activity and the sustained bitcoin selloff between March 11 and 12 were from newer market entrants. A large proportion of the more seasoned bitcoin holders remained resilient in the midst of the market turmoil providing further testament of their belief in the power of the digital asset.
The strong correlation between the crypto and mainstream financial markets selloff is a sign that a majority of the new crypto market entrants were potentially derived from equity markets. Hence the new crypto market susceptibility and inability to withstand the external market forces.