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There is uncertainty about whether a new bear market has already started in the price of bitcoin (BTC) or if the recent visits to the $25,000 zone this week are nothing more than a correction, within a bullish macro trend.
To try to get a glimpse of where the price of the digital currency is heading in the short and medium term, seeing what is happening with the US market and its stock indices may be a good option.
The reason is that in the week ending today, the correlation between the price of bitcoin and the US stock indices, S&P500 and Nasdaq, reached a new all-time high.
The reason seems to be that many large capital investors see BTC as just another risky asset. The crypto-anarchist ideals with which Bitcoin was thought, or the technological developments around that digital currency, are for them something secondary, if not irrelevant. The possibility of speculating with its price is what moves them to make buying or selling decisions.
Thus, little by little, over the years, the price of Satoshi Nakamoto’s cryptocurrency was dancing more and more to the rhythm of the world economy (which is led by the USA). UU.). Recent price movements, both bitcoin and the S&P500 and the NASDAQ, they prove it.
As seen in the previous graph, that trend seemed to be doubtful until the beginning of 2020. Bitcoin was emerging as an ideal “counter-investment” to keep its faithful covered against the risk of the fiat system and the “black swans” of the traditional stock markets.
But, since the fall of the markets due to the COVID-19 crisis, in March 2020, it was seen that neither BTC nor other cryptoassets remained safe. Since then, with a few exceptions, the correlation between BTC and the US economy has only increased.
On the correlation with the Nasdaq, an American stock exchange that brings together technology companies, Mike Boroughs, founder of the Fortis Digital investment fund, he said when asked by the press: “Five years ago, people who were into cryptocurrencies were cryptocurrency people. Now you have guys who are all over the spectrum of risky assets. So when they get hit there, that affects their psychology.”
News that discourages risky investments
Taking into account the mentioned correlation between BTC and the stocks of the S&P500, it will be useful to know what projections there are for the US economy in the short and medium term, to see where the price of the digital currency might be heading.
The index of the 500 most important US stocks. UU. touched a 3 month low this week. The reason seems to be the existing concern about the measures that the Federal Reserve (Fed) will take to tame inflation.
Kristina Hooper, Chief Global Markets strategist at Invesco, she’s convinced “the markets are directing the beginning of the return to a more normal monetary policy environment.” The raising interest rates is one of the tools of the US government to try to control inflation and the Fed’s latest measures have gone in that direction.
What may be good for the average American’s pocketbook, is not so good for financial speculators. When interest rates rise, investors are becoming more conservative and tend to shy away from risk and equity instruments. This is where stocks come in, and so does bitcoin.
In addition to this, inorganic monetary issuance in the United States — which reached record figures during 2020 — could stop. At least, for now, there have been no announcements of new “financial stimulus” or anything like that.
Although this issue was mainly responsible for the current inflation, that additional money that was injected into the economy to alleviate the consequences of the coronavirus crisis was destined by its recipients, in large part, for investments. Both the stock market and bitcoin had green numbers for much of 2020 and 2021 because of the flow of incoming money.
This flow is no longer present, so it could be thought that a calmer time is expected, which may be sideways or with a certain downward trend, for equity assets.
Bitcoin fundamentals remain bullish
Having said all this, it is worth noting that, although the correlation between bitcoin and the S&P500 reaches an all-time high, it is only about 0.33. This correlation is far from absolute (which would be indicated by a value of 1).
For the case of Nasdaq, its correlation has reached 0.82 this week, although closer, it is also far from an absolute correlation. The greater closeness is explained by the greater similarity or relationship that cryptocurrency has with a technology company than with an S&P500 company, for example, Coca Cola.
As can be seen in the graph analyzed here, on several occasions this correlation index declined rapidly and considerably. As well as there are potentially negative indicators for the price of bitcoin, the digital currency also has bullish fundamentals that remain intact and, if necessary, they could cause the correlation trend to be interrupted.
The digital scarcity that only Bitcoin offers, continues to attract investors. Y those who have been in this market the longest they seem determined not to drop their coins at these prices.
As CriptoNoticias has reported, relevant figures such as Michael Saylor (CEO of MicroStrategy) or Nayib Bukele (president of El Salvador) are convinced that the price of bitcoin has become a “dip” (fall, in English). For them, this is a correction and not a bear market.
Even if bitcoin fell more in price, it could be considered a good opportunity to acquire it at low prices. If we are in a bear market, history will possibly repeat itself and, after the next halving, which will occur in 2024, new all-time highs should be seen.
Robert Kiyosaki, a finance specialist and author of the book “Rich Dad, Poor Dad”, considers this a unique opportunity to invest in bitcoin. Last May 12, the Hawaiian, who is followed by almost 2 million people on Twitter, write:
“Bitcoin breaking down [crashing]. Great news. (…) I am waiting for bitcoin to fall to USD 20,000. Then I will wait for the proof of the fund, which could be $17,000. Once I know the bottom is in, I pull back with the truck. Accidents are the best times to get rich.”
Robert Kiyossaki, author of “Rich Dad, Poor Dad”
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