What Caused the Bitcoin Correction?
- By Bilal Hafeez and Dalvir Mandara
- 10 min read
Bitcoin is in the middle of a 16% correction from highs. At around $57,000, it is currently trading at its lowest in almost six weeks (Chart 1). Pinpointing the precise trigger for the correction is hard, but it coincided with a sharp rise in the dollar and US yields. At the micro level, speculation has circulated around increased bitcoin release from a recent taproot network upgrade, increased selling from long-term HODLers and potential bitcoin supply unlocked from the Mt Gox fiasco.
Macro Drivers of Drawdowns
While the 16% correction is large, bitcoin markets have seen much larger corrections historically. Of the largest peak-to-trough drawdowns in bitcoin’s history, the current correction is outside the top 10 (Table 1). To better understand the characteristics of the larger drawdowns, we can track parallel developments in macro markets. We find a rising dollar and higher US yields are most correlated with the largest drawdowns. Meanwhile, equity market performance tends to give little signal. This suggests stabilisation of the dollar and US yields could mark the end of the current correction.
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