Bitcoin and the Stock Market
Disclaimer: This is written for entertainment purposes only. I am not licensed or certified to give financial advice, an no publication may be interpreted as such. I am not responsible for any financial loss or damages. You are responsible for doing your own research and forming your own ideas and theories. Thanks for reading!
Bitcoin has been all over the place lately, it is important to understand why and what has been driving its price movement to decide if you are bullish or bearish in the short term. There is a lot of speculation lately regarding whether the bottom is in and the next bull cycle has already started, or if the downtrend will continue.
BTC tends move with, and sometimes even lead, the NASDAQ. The correlation certainly isn't perfect, and it wouldn't make sense if it were perfect given the different trading ecosystems of the former and latter. Bitcoin has the opportunity for its price action to react to market news immediately 24/7, whereas the NASDAQ is only active a portion of each day. That being said, according to Bloomberg, Bitcoin's 40-Day correlation coefficients with the NASDAQ are at all time highs: 0.66. One cannot help but wonder if it is a coincidence that the stocks in the NASDAQ trade for about .58 of a full day compared to BTC. The chart below helps us visualize the markets over the last 6 months.
The DOW, S&P, abd NASDAQ have all been in a short term downtrend, and currently stand around close to zero net change over the last 6 months approximately. Interestingly, Bitcoin and the NASDAQ topped in November of 2021, followed by the S&P's and DOW's tops in January. There are two major questions we need to ask ourselves regarding Bitcoin in my opinion:
1) If the stock markets continue to decline, will Bitcoin decline also?
2) What could catalyze these markets to turn around all together right now?
1) This does seem likely. Given the recent high correlation between BTC and stocks, and if we assume a catalyst is required to change this, we can speculate on what might trigger this kind of change. We need to form our own opinions on this. In my opinion, there are two potential catalysts that could realistically make this happen in the short term:
-Bitcoin SPOT ETF Approval by the SEC
-Positive SEC regulation/guidance regarding crypto
2) To answer this question, we need some context first:
The FED, led by Jerome Powell, was previously on team transitory for months, and it seemed somewhat logical. There was a major (deprecating) catalyst prompting an enormous pivot from retail to online shopping (COVID-19.) This sudden market pivot spiked the rate of inflation, and as time goes on, prices would theoretically revert to a normal rate of inflation if team transitory were winning. The FED expected inflation to spike by late 2021 in this model, which has not happened, and this is why they no longer use the term transitory. It is speculated by some that this model was correct and dirsupted by the Delta variant. The FED has been punctual recently regarding its plan on fighting inflation. Jerome Powel has said time and time again that the FED does not want to disrupt the jobs market, which has seen increasingly strengthening reports. A bad disruption could lead to a wage-price spiral, hyperinflation, and then ultimately the destruction of the US dollar, if not handled correctly (this would be a worst case scenario and the FED's strongest priority is preventing this.) The FED has been tapering off quantitative easing (injecting massive amounts of newly created money into the economy via the purchase of mortgage-backed securities,) and the taper is almost complete. The time to transition to quantitative tightening is rapidly approaching, and it is widely speculated that the first interest rate increases will result from the upcoming FED meetings.
The overall lack of certainty and confidence that the FED has inflation under control is the primary driver of market FUD currently. Fear of a recession is extremely powerful, and if the FED does not respond appropriately, the consequences may be severe. If you believe the FED will raise rates, then you must speculate on whether or not the stock market has already priced this in. It is in the general view of the FED that valuations are very high, which implies that the markets are generally overbought (in their opinion.) The FED uses monthly Consumer Price Index reports, amongst other tools, to track inflation. CPI reports are still indicating increasing rates of inflation.
To answer the question, the markets would want see the FED keep rates at zero for the market to bottom. More specifically, we would need inflation to decline without intervention.
Ultimately, you need to make up your own mind and do your own research. I write these summaries to provide context on what is going on, it is your responsibility to decide what you think will happen and trade/invest accordingly with your risk tolerance.
Technical Analysis
Bitcoin is trading at interesting price levels currently. The 500 Day moving average (orange) is just above $41,250. Bitcoin has not traded below this level since March of 2020, and this level may indicate an extended bear market for Crypto if support does not hold. The 12 day moving average(light blue) has also converged to a similar price level, leaving us in a very pivotal time. The descending channel is drawn out in red, and we will discuss what a bull and bear market may look like.
The Bull Case
Bitcoin needs to find support. If we find support at the 12day/500day moving averages, then we may expect a retest of the upper bound of the descending channel drawn in red. A clean upwards break of this channel is bullish, and then Bitcoin would need to set a new local high over 45,850 to establish an uptrend.
The Bear Case
Bitcoin does not find lasting support at the 500 day moving average, and tests the yellow trendline. If the yellow trend does not hold up, then we may see a test of the lower bound of the current downtrend around $27,000
Final Remarks
It will be wise to closely monitor the actions of the FED over the several weeks and months. They have the power to move markets, their number one concern is inflation, and monthly inflation reports are coming in high. Interest rate hikes are the primary combat to inflation for the FED, and if you think that is what they will do, you need to determine how you think the market will react. We have some decent trendlines to use for guidance, and time will soon tell where the trend will go.
Thanks for reading, good luck!
Bitcoin has been all over the place lately, it is important to understand why and what has been driving its price movement to decide if you are bullish or bearish in the short term. There is a lot of speculation lately regarding whether the bottom is in and the next bull cycle has already started, or if the downtrend will continue.
BTC tends move with, and sometimes even lead, the NASDAQ. The correlation certainly isn't perfect, and it wouldn't make sense if it were perfect given the different trading ecosystems of the former and latter. Bitcoin has the opportunity for its price action to react to market news immediately 24/7, whereas the NASDAQ is only active a portion of each day. That being said, according to Bloomberg, Bitcoin's 40-Day correlation coefficients with the NASDAQ are at all time highs: 0.66. One cannot help but wonder if it is a coincidence that the stocks in the NASDAQ trade for about .58 of a full day compared to BTC. The chart below helps us visualize the markets over the last 6 months.
The DOW, S&P, abd NASDAQ have all been in a short term downtrend, and currently stand around close to zero net change over the last 6 months approximately. Interestingly, Bitcoin and the NASDAQ topped in November of 2021, followed by the S&P's and DOW's tops in January. There are two major questions we need to ask ourselves regarding Bitcoin in my opinion:
1) If the stock markets continue to decline, will Bitcoin decline also?
2) What could catalyze these markets to turn around all together right now?
1) This does seem likely. Given the recent high correlation between BTC and stocks, and if we assume a catalyst is required to change this, we can speculate on what might trigger this kind of change. We need to form our own opinions on this. In my opinion, there are two potential catalysts that could realistically make this happen in the short term:
-Bitcoin SPOT ETF Approval by the SEC
-Positive SEC regulation/guidance regarding crypto
2) To answer this question, we need some context first:
The FED, led by Jerome Powell, was previously on team transitory for months, and it seemed somewhat logical. There was a major (deprecating) catalyst prompting an enormous pivot from retail to online shopping (COVID-19.) This sudden market pivot spiked the rate of inflation, and as time goes on, prices would theoretically revert to a normal rate of inflation if team transitory were winning. The FED expected inflation to spike by late 2021 in this model, which has not happened, and this is why they no longer use the term transitory. It is speculated by some that this model was correct and dirsupted by the Delta variant. The FED has been punctual recently regarding its plan on fighting inflation. Jerome Powel has said time and time again that the FED does not want to disrupt the jobs market, which has seen increasingly strengthening reports. A bad disruption could lead to a wage-price spiral, hyperinflation, and then ultimately the destruction of the US dollar, if not handled correctly (this would be a worst case scenario and the FED's strongest priority is preventing this.) The FED has been tapering off quantitative easing (injecting massive amounts of newly created money into the economy via the purchase of mortgage-backed securities,) and the taper is almost complete. The time to transition to quantitative tightening is rapidly approaching, and it is widely speculated that the first interest rate increases will result from the upcoming FED meetings.
The overall lack of certainty and confidence that the FED has inflation under control is the primary driver of market FUD currently. Fear of a recession is extremely powerful, and if the FED does not respond appropriately, the consequences may be severe. If you believe the FED will raise rates, then you must speculate on whether or not the stock market has already priced this in. It is in the general view of the FED that valuations are very high, which implies that the markets are generally overbought (in their opinion.) The FED uses monthly Consumer Price Index reports, amongst other tools, to track inflation. CPI reports are still indicating increasing rates of inflation.
To answer the question, the markets would want see the FED keep rates at zero for the market to bottom. More specifically, we would need inflation to decline without intervention.
Ultimately, you need to make up your own mind and do your own research. I write these summaries to provide context on what is going on, it is your responsibility to decide what you think will happen and trade/invest accordingly with your risk tolerance.
Technical Analysis
Bitcoin is trading at interesting price levels currently. The 500 Day moving average (orange) is just above $41,250. Bitcoin has not traded below this level since March of 2020, and this level may indicate an extended bear market for Crypto if support does not hold. The 12 day moving average(light blue) has also converged to a similar price level, leaving us in a very pivotal time. The descending channel is drawn out in red, and we will discuss what a bull and bear market may look like.
The Bull Case
Bitcoin needs to find support. If we find support at the 12day/500day moving averages, then we may expect a retest of the upper bound of the descending channel drawn in red. A clean upwards break of this channel is bullish, and then Bitcoin would need to set a new local high over 45,850 to establish an uptrend.
The Bear Case
Bitcoin does not find lasting support at the 500 day moving average, and tests the yellow trendline. If the yellow trend does not hold up, then we may see a test of the lower bound of the current downtrend around $27,000
Final Remarks
It will be wise to closely monitor the actions of the FED over the several weeks and months. They have the power to move markets, their number one concern is inflation, and monthly inflation reports are coming in high. Interest rate hikes are the primary combat to inflation for the FED, and if you think that is what they will do, you need to determine how you think the market will react. We have some decent trendlines to use for guidance, and time will soon tell where the trend will go.
Thanks for reading, good luck!
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