Crypto correlation with the S&P500 reveals widespread macro impact but M2 supply bounces back.
If you have been keeping track of the latest crypto news, then you know that the proverbial “blood on the streets” scenario played out last week.
The market experienced a sizable market correction, made worse by heavy liquidations. It’s now the dawn of a new week, and bearish crypto news has cooled down slightly over the last 24 hours.
Despite this, investors remained cautious and curious about the market’s next move. Whether the market will recover or extend its decline could be determined by the reasons behind the latest pullback.
The collective market liquidation surged as high as $922 million on Friday. This was the highest liquidation event since late February.
The spark for the liquidations may have been the tariff war fears, while the fuel was the heavy leverage.
Interestingly, the liquidations cooled down since then, and the bearish momentum also fizzled out. But is this a pause before the market extends its downside, or will it pave the way for a recovery?
Why Macro Crypto News May Influence the Next Market Outcome
While the tariff disruption underscored disruption, it was not the only macro factor that may have influenced crypto market sentiment. The threat of war has historically hurt investor sentiment.
Interestingly, the latest market pullback occurred just as U.S President Donald Trump made remarks about being prepared for a nuclear war with Russia.
POTUS also revealed plans to move nuclear submarines into strategic positions. The situation highlighted rising geopolitical tensions, which may influence investor decisions.
Unsurprisingly, the crypto fear and greed index, which was in greed territory above 73 points last week, has since dipped to neutral.
It hovered at 55 points at the time of observation, and could risk dropping further into fear territory if geopolitical tensions escalate further.
These geopolitical tensions could potentially continue to influence investor sentiment in the short term. This may translate to lower investor excitement, especially compared to June and early July.
Short-term catalysts could potentially offset these macro concerns. That is why analysts were on the lookout for potential changes that could determine the next move in the coming days.
Why Liquidity Flows Could Be the Canary in The Coal Mine for the Macro Situation
The overall crypto market liquidity demonstrated significant correlation with the S&P500. In other words, the recent market dip was not just limited to crypto but also extended to the stock market.
The stock market and crypto correlation confirmed that macro events were behind the latest retracement across the two markets.
This also meant that the same factors could determine the next move. The M2 money supply has been ticking up, and could signal the flow of liquidity in the market as long as it continues to do so.
Although cryptocurrencies and the stock market may be facing short-term headwinds, the macro outlook remained bullish.
In the meantime, there were signs of optimism, especially in the whale cohort. For example, one particular whale executed a $3.3 million 40X leverage Bitcoin long position on Hyperliquid.
The long position was reminiscent of the kind of trades that whales executed during extremely bullish periods.
This suggested that there were heavy expectations of a recovery rally. However, the trade also underscored another potential liquidation incident.
More sell-side pressure in the crypto market could wipe out leveraged long positions and potentially trigger another long squeeze.
Such an outcome was plausible considering that the macro situation favored a cautious outlook, but crypto news this coming week could determine how things will unfold.
Read more on The Coin Republic
