Bitfinex Explains Bitcoins Monday Plunge
Risk assets faced a meltdown caused by rising concerns over a Chinese artificial intelligence (AI) model created by the AI startup DeepSeek. This model, dubbed R1, rivals o1, another one created by the American AI research company OpenAI. At the time of writing, DeepSeeks AI assistant had dethroned ChatGPT as the most downloaded free app on Apples App Store.
Due to bitcoins (BTC) correlation with the equities market, the asset fell alongside equities, and major indexes like the S&P 500, the NASDAQ composite, the Dow Jones, and even stocks of companies like the tech giant Nvidia have plummeted significantly. Data from CoinMarketCap shows that BTC went down by over 6% at one point but recovered most losses on Tuesday to tap $103,000.
Bitcoin Strongly Correlates With Equities
The latest Bitfinex Alpha report highlights the rising correlation between bitcoin and traditional equities, the evolving relationship between crypto and traditional finance, and how BTC is increasingly treated like a risk-on major asset class. This increasing alignment can also be seen in the 30-day rolling Pearson correlation between Bitcoin, the S&P 500, and the NASDAQ, which has now surged to 0.7.
When equity markets are rallying, especially in the current post-election period or amidst favorable economic news, Bitcoin benefits from that momentum. Conversely, any shift in equities could easily trigger a domino effect on Bitcoin, amplifying volatility, Bitfinex stated.
Bitfinex analysts said BTC is no longer a digital asset playing by its own rules but has become linked to the broader risk asset landscape. Depending on the direction of the markets, this could pose both risks and opportunities. This means the trajectory of equities would largely determine bitcoins movement in the coming months, especially in response to macroeconomic news.
Bitcoins Price Stabilizes
Meanwhile, BTCs implied volatility has declined by more than 13% after hitting a peak on January 20 following speculation over crypto-related announcements on U.S. President Donald Trumps inauguration day.
Additionally, Bitfinex found that the bitcoin market is beginning to stabilize as capital inflows level off and profit-taking reduces. The plunge in bitcoins implied volatility and stable BTC prices often indicate that traders see current levels as sustainable because they perceive lower risk and uncertainty.
This also means that BTC traders have adopted a wait-and-see approach and that the market will require fresh capital inflows to maintain current price levels.
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