Bitcoin falls below $57,000 as US stock market sinks

• Bitcoin price is approaching a crucial support level at $56,000; a close lower could see its downtrend persist.
• U.S. spot Bitcoin ETFs saw an outflow of $287.80 million on Tuesday.
• On-chain data paints a bearish picture as long-to-short Bitcoin is below one.
• Bitcoin’s correlation with the US stock market persists, albeit less pronounced than before.

Bitcoin (BTC) extends its decline by 1.5% on Wednesday, following a bounce from Tuesday’s key resistance level and hurt by a drop in the US stock market. This downtrend may persist if BTC breaks below the $56,000 support level, especially since US spot Bitcoin ETFs saw an outflow of nearly $290 million. Chain data also shows a bearish outlook with the long-short ratio dipping below one.

Daily Market Reasons: Bitcoin Price Falls as US Stock Market Sinks

• Sentiment data highlights the evolving correlation between the US stock market and Bitcoin prices. Bitcoin’s recent decline is relatively minor compared to the sharp decline in the US stock market.

Historically, Bitcoin fell more than 7% when the S&P 500 fell 3% on August 5th. However, with the S&P 500 down 2.16% on Tuesday, Bitcoin’s correction was limited to 2.78%, suggesting a potential reduction in Bitcoin’s sensitivity to stock market fluctuations.

Bitcoin and S&P 500 Comparison Chart

• U.S. spot Bitcoin ETFs saw an outflow of $287.80 million on Tuesday, a sign of waning demand, according to Coinglass data. The combined Bitcoin reserves held by the 11 U.S. spot Bitcoin ETFs stand at $43.14 billion, a number that has been steadily declining since late August.

Bitcoin Spot ETF net flow chart

Bitcoin ETF AUM chart

• Coinglass’ Bitcoin long-short ratio is also 0.95, supporting the bearish outlook. This report reflects bearish sentiment in the market, as a number below one suggests that more traders anticipate the asset’s price to decline.

Bitcoin long-short ratio chart

BTC Technical Analysis: All eyes on $56,000

Bitcoin was rejected after retesting its 50% price retracement level at $59,560 (pulled from a late July high to an early August low) and fell 2.78% on Tuesday. On Wednesday, it continued its downtrend, falling 1.5% to $56,622 and retesting the daily support level at $56,022.

If BTC closes below this $56,022, it could further decline by 3.5% to retest the psychological level of $54,000.

The Relative Strength Index (RSI) and the Awesome Oscillator (AO) on the daily chart are trading below their respective neutral levels of 50 and zero, respectively. Both indicators suggest weak momentum and a continuation of its downtrend.

BTC/USDT Daily Chart

However, if Bitcoin price breaks the $59,560 resistance and closes above $62,019, the 61.8% Fibonacci retracement level, the bearish thesis will be invalidated. In this scenario, BTC could extend the positive move by 5.5% to revise its daily resistance level at $65,379.