Bitcoin prices seem to be at the mercy of what is going on with Wall Street
Bitcoin falls, and the Dow and S&P markets fall, bitcoin rises and stocks see a nice bounce.
More so than ever before bitcoin and cryptocurrencies seem to be tied to what is going on with Wall Street, and vice versa.
If you haven't been following Wall Street much, it has been mostly taking it on the chin over the past few weeks, much the same way bitcoin has.
The reasons for this are mostly related to Trump, trade wars, rising interest rates, and a market that was already up substantially over the last year without any significant pullbacks.
Basically, it was ripe for some profit taking.
How does bitcoin fit in?
Well, if you go back to December of 2017, you will see that bitcoin peaked just under $20k near the end of the month.
A few weeks later, the Dow/S&P peaked as well.
Both saw significant drops in prices.
The price action can be seen here:
(Source: https://bullmarkets.co/stocks-on-march-28-2018-outlook/)
If you look very closely, you can see that bitcoin seems to be leading the price action seen on Wall Street.
To be honest, this makes sense.
As far as risky assets go, bitcoin is considered to be on the extreme end of the risky spectrum. Meaning that people are more willing to put money in it when times are good.
Now that a bit of fear is creeping into the markets, the appetite for buying things like bitcoin seems to have waned.
This is an interesting development because historically bitcoin has had almost no correlation to stocks, except for maybe a slightly negative correlation, meaning that it actually performed slightly better when stocks were weak.
What we have been seeing for the past couple months is different than what we have seen throughout the history of bitcoin.
Why is this happening?
This likely is happening because bitcoin and stocks are sharing more and more of the same on-ramps as well as more and more of the same investors.
Wall Street money is entering the crypto space for the first time ever and as we see more of that, the two asset classes are likely to become more and more correlated.
Given this new found environment it seems that getting things to calm down a bit geopolitically might benefit bitcoin as well as the stock markets.
Interesting times we are living in. It seems the environment is forever evolving and changing.
Stay informed my friends.
Image Source:
https://blog.bitmex.com/bitcoin-price-correlation-record-high-against-the-sp-500/
Follow me: @jrcornel
In the first place, it don't matter actually , if you're a long term investor it's always a good news to you, and if you're a short term investor it's a bad news for you.
I'm still hopeful that bitcoin will become a hedge against the collapsing stock market. It might not seem that way right now but it can shift very quickly.
Bitcoin will be correlated with the stock market but its moves might be decoupled from a collapsing bond market and inter-bank liquidity problem scenario.
When financial markets move towards extreme volatility to any direction, there tends to be a strong correlation with all risky assets as it impacts the emotions of fear and greed of the participants. When the dust settles across the board, money will find its way back into quality assets. However, assets with no future or little potential will be stuck in the mud for an extended period of time.
That is a great point. Thanks for the comment.
Thanks for the great analysis and info.
Some think it’s going to $5700 ? At that price I would be tempted
I agree. If you have a diversified portfolio including btc and you need fast cash, or you are concerned about the state of things, you are likely to sell btc first, or at least more btc than other assets.
Keep an eye out for a risk-off event (when investors dump all perceived risk assets to preserve capital). Ironically, this very sort of event is something that will benefit Bitcoin in the longer term, with its intent on becoming a transparent store of value.
In terms of correlations, I've just penned a report comparing crypto to all other assets. Highly encourage folks here to read it!
Nice post.
So when the S&P 500 goes to $1800
What price will Bitcoin go to $4900?
That is a possibility, though if that were to happen stocks would be off about 40%, but bitcoin would be off about 80%. Perhaps bitcoin stops short of that number and breaks the current correlation.
It is very possible.
Very interesting article, thanks for sharing. I've smashed the upvote button for you!
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Great! Yes agree with you.Nowadays market value is low, so it is a opportunity to bye bitcoin.
nice information.
thanks jrconel.
That sounds like good news to me. Despite the current environment, I see a bright future for Bitcoin and STEEM. Who's in with me?