How could Bitcoin’s strong correlation with stocks trigger a drop to $8,000?

The Bitcoin (BTC) price chart over the past few months reflects nothing more than a bearish outlook, and it’s no secret that the cryptocurrency has been making lower lows consistently since it surpassed $48,000 at the end of March.

Bitcoin price in USD. Source: TradingView

Curiously, the gap in support levels grows wider as the correction continues to lower investor confidence and risk appetite. For example, the latest $19,000 baseline is almost $10,000 off the previous support. So, if the same move is unavoidable, the next sensible price level would be $8,000.

Traders fear regulation and contamination

On July 11, the Financial Stability Board (FSB), a global financial regulator that includes all G20 countries, announced a A framework of recommendations for the crypto sector is expected in October. The FSB added that international regulators should monitor crypto markets in line with the “same activity, same risk, same regulation” principle.

In a written speech on July 12, Jon Cunliffe, the Bank of England vice-president for financial stability, said that somehow crypto is gone and should no longer be a concern. Cunliffe added: “Innovation must take place within a framework where risks are managed.”

To date, investors have still not been able to settle the total loss from deposits on crypto lenders Celsius and Voyager Digital, and both firms continue to seek a bailout or bankruptcy. According to Voyager, the firm still holds $650 million worth of “receivables against Three Arrows Capital,” so the exact number of client assets is unknown.

The negative news feed is reflected in CME’s premium on Bitcoin futures contracts. This data measures the difference between long futures contracts and current spot prices in normal markets.

When this indicator disappears or turns negative, it is an alarming red flag. This condition is also known as retrograde and indicates that a bearish trend is present.

BTC CME 1-month futures premium vs Coinbase/USD. Source: TradingView

These fixed monthly contracts are often traded at a slight premium, meaning sellers are demanding more money to delay settlement longer. As a result, futures should trade at a premium of 0.25-0.75% in healthy markets, a condition known as contango.

Notice how the indicator has been sitting below the “neutral” range since early April as Bitcoin failed to sustain above $45,000. The data shows that institutional investors are reluctant to open long-term leveraged positions, even if they are not yet bearish.

Macroeconomic fears prevent investors from trading crypto

The data provided by the exchange highlights the clear positioning of traders from long to short. By analyzing each client’s position on spot, perpetual and futures contracts, it can be better understood whether professional traders are bullish or bearish.

There can be occasional differences in methodologies between different exchanges, so viewers should watch for changes rather than absolute numbers.

Top traders change the Bitcoin long-short ratio. Source: Coinglass

Despite Bitcoin correcting 11% from July 9 to 12, top traders increased their leverage longs. The long-short ratio on Binance remained relatively stable at 1.13, while the top traders on Huobi started at 0.95 and finished the period at 0.93. However, this effect was more than offset by OKX traders increasing their bullish bets from 1.09 to 1.32.

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The lack of premium on the CME futures contract is not a concern as Bitcoin struggles with the $20,000 resistance. Also, top traders on derivatives exchanges increased their longs despite 11% price drop in three days.

Regulatory pressure is unlikely to recede in the short term, and at the same time, there isn’t much the Federal Reserve can do to quell inflation without triggering some sort of economic crisis. Therefore, professional traders are in no rush to buy the dip as Bitcoin’s correlation with traditional assets remains high.

The views and opinions expressed herein are solely author and may not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.