14 Jun 2022
Inflation surprise igniting the downfall - Correlations remain very sticky
Most of the crypto market is eyeballing the potential insolvency of Celsius as the key driver of the poor market. While it’s true that the Celsius situation contributes to exaggerating the sell-off, poor U.S. markets seem to be the key driver still.
On Friday, U.S. CPI numbers of 8.6%, above market expectations of 8.4%, shocked the market, leading both S&P 500 and Nasdaq to plunge, with BTC following the downfall. Two weeks ago, we mentioned the declining correlations in the market driven by the recovery in the U.S. equity markets while BTC remained mostly flat. We pointed towards June 10th and June 15th as important macro dates in order to assess whether the market structure was changing. Amid the inflation surprise, we see that BTC’s correlation to equities has again seen a sharp increase. The market is now gearing up for a new FOMC meeting, and the higher-than-expected inflation immediately led to a reaction in U.S. treasuries, with the 2-year T-note soaring above 3%, leading Goldman Sachs to revise their FED forecast to include 75bps hikes in June and July.On top of the soaring T-note this month, FED has initiated its balance sheet reduction by introducing quantitative tightening, contributing to draining liquidity from the market and opening up for further headwinds. BTC followed U.S. markets closely on Friday and, in extension, also during this weekend. However, as prices plummeted, new ghosts emerged, and the dangers of impactful insolvencies have contributed to further drag on the crypto market.A lot of eyes will be glued to the FOMC meeting on Wednesday, and investors should be braced for volatility and sticky correlations at least in the coming days.