The last week has seen an incredible drop in the price of Bitcoin, the world’s biggest cryptocurrency. The coin managed to shed 37.53 percent value in a single day which, for the history of the coin, represents the third largest loss following a 38 percent loss in 2011, and the largest being a 48 percent loss in 2013.

This collapse in the Bitcoin market has wreaked havoc with cryptocurrency investors and has also been tied almost directly with the fear that is emanating around the Covid-19 outbreak that has affected the global markets as well.

Bitcoin’s price is now sitting just above the $5,000 mark, having tipped $10,400 at one stage this year when it was climbing ahead of the May Bitcoin mining reward halving. Of course, this is a huge drop in price for the coin, but — year on year — Bitcoin is still up 36 percent.

What was the cause?

It has become clearer now that Bitcoin’s correlation to traditional markets was far stronger than many believed. There was a sentiment that Bitcoin was negatively correlated and thus could act as a safe haven — but this has been proved to be incorrect.

A closer look at the correlation chart with the stock market at the time that the price collapsed shows a massive spike as the 90-day correlation between the Bitcoin price and S&P 500 went up to the highest level ever seen, after the recent price drop.

In just one day, the correlation went from an insignificant level of 0.1 to over 0.5. Even though this correlation is expected to fall drastically again, there is no doubt that the “uncorrelated asset” narrative for bitcoin is taking a hit these days.

A fearful market

Looking at other metrics around the price of Bitcoin, The Fear & Greed Index dropped like a rock this week and is now down to 10. This situation also shows that all indicators have their weaknesses.

This index was down to a level of 5 in August 2019. As this index is built on very specific data (volumes, volatility, social media, surveys, dominance and google trends), it doesn’t necessarily get the real market sentiment and it is plain to see that the market is more fearful now than in August 2019.

Unsurprisingly, the 30-day volatility jumped up to above 7% — levels not seen since 2014 — having sat around three percent for most of this year so far.