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Bitcoin Sniffing Out a Dip in Market Liquidity

May 12, 2023 • 9 Min Read

Bitcoin Reflecting a Local Top in Market Liquidity

During the majority of Q1 and early Q2, the financial market observed a strong correlation between Bitcoin (BTC), equities, and gold, with an even more pronounced link between BTC and gold. This close relationship was a result of global market liquidity reaching its lowest point in Q4 of 2022, which coincided with a slowdown in inflation and (likely) the final stages of the Federal Reserve's tightening cycle. This relationship continues to be evident in the 90-day rolling correlations between these assets.

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However, zooming in, it appears that the correlations between Bitcoin and these other liquidity-sensitive assets have been deteriorating recently. The chart below illustrates that BTC has become virtually uncorrelated with both SPX and gold over the trailing 30-day period. We think this shift may indicate an ongoing short-term change in market dynamics.

The chart in this report is only accessible to members
Unsurprisingly, on-chain momentum indicators, particularly our favored Spent Output Profit Ratio (SOPR), reveal diminishing conviction among holders, resulting in more sellers at lower margins. SOPR is an on-chain metric that evaluates the profitability of Bitcoin holders by comparing the purchase price of spent outputs to...

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