Following the higher-than-expected CPI inflation data on Tuesday, Bitcoin and the broader crypto market witnessed a sharp fall. Currently, Bitcoin is trading at 8.4% over the last 24 hours holding just above its crucial support of $20,000.
Bitcoin’s price crash came alongside that of the S&P 500 dropping 4.5% and slipping under $4,000. As on-chain data provider Santiment explains:
After a brutal #CPI report on disappointing inflation news Tuesday, #Bitcoin fell alongside the #SP500‘s biggest daily drop in two years. The correlation between the sectors remains high, and #crypto typically thrives best with zero #equity reliance.
As we know, Bitcoin has been showing a greater correlation with the S&P 500 here. As long as Bitcoin continues to follow the equity markets it is likely to stay in the bear’s grip going ahead.
Bitcoin (BTC) Can Correct Another 20%
If BTC continues to follow its correlation with S&P 500, another 20% drop to $16,000 is very much likely. Jurrien Timmer, director of global macro at Fidelity said:
If a 14x forward multiple is the correct valuation, then simple math will tell us that the fair value for the S&P 500 is 3200-3400 at an EPS of $230. This suggests that this bear market is not yet over.
Just as the news of U.S. CPI inflation came on Tuesday, the Bitcoin Fear & Greed Index slid from 34/100 to 27/100. However, it has still not entered the “extreme fear” zone which shows some kind of investor resilience at this point.
Once again the news of inflation prevents Bitcoin from crossing its 200-day moving average (DMA), a zone of crucial resistance for Bitcoin this year.
Along with Bitcoin, several other altcoins have also corrected. A day ahead of the Merge event, Ethereum (ETH) has once again tanked 7% moving to $1,600 levels. As the Merge approaches closer, ETH has come under some selling pressure by following “sell the news” kind of momentum.