• Bitcoin collapses to its lowest level since February 27

• Stocks hit new highs, depicting waning correlation with cryptos

• Selling of Mt Gox refunds and government-seized coins persists

 

Cryptos diverge from stocks

Bitcoin has been on a slippery slope in the past four sessions, dropping from $63,220 to a fresh four-month low of $53,520, on Friday. This weakness has spilled over to the broader crypto space, with Ethereum being 18% down in the same period, while many altcoins have experienced even bigger losses.

Interestingly, the latest crypto selloff has been unfolding in a period when US equity markets are rallying to consecutive higher highs. Without an obvious reason, it could be assumed that cryptocurrency sector-specific risks are mainly responsible for the correlation break between the two risk-sensitive asset classes.

With the launch of spot ETFs and significant upgrades like Bitcoin's halving and Ethereum’s Dencun now behind us, the crypto space is evidently lacking both the catalysts and the excitement needed to extend its spectacular 2024 rally. However, idiosyncratic risks might also kick in for stocks, especially with earnings season just around the corner. This could lead to yet another shift in their correlation with cryptocurrencies.

What’s behind the crypto bloodbath?

The recent downturn in cryptocurrencies can be attributed primarily to the increased selling pressure stemming from MT Gox’s refunded tokens and German government's seized coins, or at least the speculation surrounding these coins. However, considering the magnitude of the selloff, it seems that the decline could already be overdone.

Sales of a significant quantity of a specific asset often occur in blocks to avoid an impulsive wave of momentum trades that could send the price unjustifiably lower. Meanwhile, countries like Germany or the US that possess substantial crypto holdings would normally prefer to sell them at attractive prices. In any case, they might not be in a rush to ditch them in a declining market.

For the reasons highlighted above, it could be inferred that the latest selloff in Bitcoin might be exaggerated, but for now it seems that the absence of bullish drivers is preventing the bulls’ from buying the dip.

The break below 200-day SMA spells trouble

BTCUSD has been experiencing a massive selloff since the beginning of June, which has accelerated in the past four sessions. Moreover, the price broke below the crucial 200-day simple moving average (SMA), increasing the bears’ appetite for more downside.

Should the slide extend, Bitcoin might find support at two previous resistance zones of $52,850, or lower at $49,050.

On the flipside, an upside reversal could open the door for the May bottom of $56,483 ahead of the April support of $59,600.