The financial markets were gripped by turbulence on Tuesday as the S&P 500’s significant drop led to a parallel decline in Bitcoin (BTC). The cryptocurrency, often dubbed digital gold, shed 4.5% of its value, plummeting to $56,500. This sharp decline not only rattled investors but also triggered a substantial wave of liquidations, casting a shadow over Bitcoin’s near-term future.

S&P 500’s Downturn Echoes in the Crypto Market

The interconnectedness between traditional financial markets and the cryptocurrency sector has never been more apparent. As the S&P 500 dropped by over 2%, Bitcoin followed suit, underscoring how closely these two markets are now linked. The selloff in the stock market, spurred by disappointing economic data, spilled over into the crypto space, where Bitcoin’s value nosedived, leading to liquidations totaling $246 million. According to Coin glass, these liquidations were largely the result of leveraged positions that were forcibly closed as Bitcoin’s price dipped below critical levels.

Ali Martinez, a well-known crypto analyst, highlighted the precarious position Bitcoin finds itself in. He noted that a further decline below $56,840 could trigger even more liquidations, worsening the already fragile market sentiment. As of the latest market updates, Bitcoin has dipped below this threshold, signaling that more pain could be on the way.

Stochastic RSI Points to Possible 75% Crash

Adding to the bearish outlook, the Stochastic Relative Strength Index (RSI) on Bitcoin’s 2-month chart has flipped from a bullish to a bearish trend. Historically, when the Stochastic RSI has made such a shift, it has often been a precursor to substantial market corrections. In fact, over the past decade, similar signals have led to Bitcoin experiencing corrections as deep as 75.5%.

If history is any guide, this bearish signal could mean that Bitcoin is on the verge of a significant downturn. Investors are understandably concerned, especially as the broader economic landscape remains uncertain. This potential for a sharp decline has led many to question whether Bitcoin can maintain its status as a safe-haven asset in times of financial instability.

Veteran trader Peter Brandt has also turned bearish on Bitcoin. He pointed to a troubling pattern of lower highs and lower lows in Bitcoin’s price action, which suggests a lack of strong buying interest. Without a substantial influx of new buyers, Bitcoin could continue to slide, potentially testing lower support levels in the near future.

Spot Bitcoin ETFs Experience Massive Outflows

The bearish sentiment is not just limited to the price action of Bitcoin itself. Spot Bitcoin exchange-traded funds (ETFs) in the U.S. have seen a surge in outflows, with Tuesday marking one of the largest single-day withdrawals since May. Over $287 million was pulled from these funds as institutional investors retreated from riskier assets.

BlackRock’s IBIT, the largest spot Bitcoin ETF by net assets, recorded zero inflows for the day, a concerning sign for those who see institutional interest as a key driver of Bitcoin’s price. Grayscale’s GBTC, the second-largest Bitcoin ETF, saw outflows of $50.4 million, while Fidelity’s FBTC led the pack with $162.3 million in withdrawals. Other ETFs, including those managed by Ark and Bitwise, also reported significant outflows, further exacerbating the negative sentiment.

Nvidia’s Troubles Compound Market Woes

The broader market turmoil was intensified by a major development involving Nvidia, the chipmaker whose stock has been a darling of the tech sector. On Tuesday, the U.S. Department of Justice issued a subpoena to Nvidia, leading to a 10% drop in its stock price. This sharp decline had a ripple effect across the tech sector and contributed to the overall market selloff.

As Wall Street stumbled, so did the cryptocurrency market. Bitcoin and other altcoins saw their prices crash by 4-10%, wiping out billions in market value. With the Federal Reserve expected to cut interest rates by 50 basis points later this month, the market’s reaction to this move will be closely watched.

The Road Ahead: Caution for Bitcoin Investors

The recent developments paint a grim picture for Bitcoin in the short term. While some analysts hold out hope for a recovery, the prevailing sentiment is one of caution. The potential for a 75% crash looms large, particularly if the Stochastic RSI’s bearish signal proves accurate.

For now, Bitcoin investors may need to brace themselves for further volatility. As traditional and crypto markets remain in flux, the coming weeks could be crucial in determining whether Bitcoin can stabilize or if it will succumb to the bearish forces at play.