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The stock market could crash again, which would trap Bitcoin.
The last stock market crash occurred in March 2020, when the rapid spread of the coronavirus pandemic led to lockdowns in developed and emerging economies. Subsequently, global stock markets plummeted, and Bitcoin lost half of its value in just two days.
Meanwhile, the U.S. Dollar Index (DXY) rose 8.78% to 102.992, its highest level since January 2017. DXY tracks the strength of the U.S. dollar relative to a basket of major foreign currencies.
This huge inverse correlation suggests that investors are selling their stocks and Bitcoin to seek safety in what they consider to be a better safe-haven asset, the U.S. dollar.
More than a year later, Bitcoin and the stock market are experiencing similar bearish sentiment again, this time due to hawkish rhetoric from the Federal Reserve that has renewed investor demand for the U.S. dollar.
The Federal Reserve announced last Wednesday that it will begin raising its benchmark interest rate by the end of 2023, a year earlier than originally planned.
Lower interest rates helped Bitcoin and the U.S. stock market emerge from their bear market slumber. With the Federal Reserve keeping lending rates in the 0%-0.25% range, Bitcoin jumped from $3,858 in March 2020 to nearly $65,000 in April 2021.
Meanwhile, the S&P 500 has risen more than 95% from its mid-March 2020 high to 4,257.16. As shown in the chart below, the Dow Jones and Nasdaq Composite have seen similar gains. Bitcoin, Nasdaq Composite, S&P 500, and Dow Jones all rise in sync after March 2020 crash Source: TradingView.com
This is what happened last Wednesday after the Federal Reserve announced a rate hike… Bitcoin and US stocks plunge after Fed announces rate hikeSource: TradingView.com
Meanwhile, the U.S. dollar index jumped to a two-month high, suggesting renewed interest in the greenback among global markets. The US dollar index rose 2.06% after the Fed announced a rate hike. Source: TradingView.com
Popular on-chain analyst Willy Woo said on Friday that a stock market crash coupled with a stronger dollar could strengthen Bitcoin’s bearish outlook.
“If the stock market falls, there is some downside risk to Bitcoin, and the U.S. dollar index (dollar strength) rebounded sharply, which is a typical manifestation of funds turning to safe-haven assets,” he explained.
Michael Burry, head of Scion Asset Management, also sounded the alarm about an impending Bitcoin and stock market crash, adding that when crypto markets fall from trillions, or when meme stocks fall from billions, the losses for the general public will approach the size of a country.
“The problem with crypto, like most things, is leverage, and if you don’t know how much leverage there is in crypto, you don’t know anything about crypto,” he tweeted.
Burry later deleted his tweet.
Some Bullish Hope <br />Regardless of price direction, Bitcoin adoption continues to grow, which was an upside catalyst that was missing during the March 2020 crash.
Last Friday, CNBC reported that Goldman Sachs had begun trading Bitcoin futures with Galaxy Digital, a crypto merchant bank led by former hedge fund tycoon Mike Novogratz. CNBC said that Goldman Sachs called on Galaxy as its liquidity provider in response to increasing pressure from its wealthy clients.
Galaxy Digital co-president Damien Vanderwilt added that mainstream adoption of Bitcoin will help reduce its price volatility and pave the way for institutional players to join the cryptocurrency bandwagon. Here is part of his interview with CNBC:
“Once one bank starts doing this, other banks will be afraid of missing out and will jump in because their customers have been asking for it.”
The move follows other major financial and banking services firms including Morgan Stanley, PayPal and Bank of New York Mellon launching crypto services for their clients.
Is Bitcoin in a bear market?
When asked, “Are we in a bear market now?” Woo said that despite the recent price drop, Bitcoin adoption still looks healthy. The analyst cited on-chain metrics to show that the Bitcoin market is seeing increasing user growth and capital infusion.
The most noteworthy thing is the capital flow back from stablecoins into the crypto market (I am talking mainly about Bitcoin as altcoin dominance is declining). All the money that was sitting on the sidelines is starting to flow back. — Willy Woo (@woonomic) June 18, 2021 He also pointed out that the recent Bitcoin sell-off has simply moved BTC from bearish traders to bullish traders. 7-day Bitcoin moving average between bearish and bullish traders Source: Willy Woo Woo reminded:
“My only downside concern is if there is a major correction in the stock market, which would pull Bitcoin prices lower, regardless of what on-chain fundamentals might suggest. Notice the strength in the U.S. dollar index, which means some investors are turning to the greenback for safety.”
As a blockchain news platform, Cointelegraph Chinese only provides personal opinions, which have nothing to do with the position of Cointelegraph Chinese platform and do not constitute any investment and financial advice. Please establish correct monetary concepts and investment ideas and effectively improve risk awareness. As China has not yet issued relevant policies and regulations on digital assets, users in mainland China are advised to invest in digital currencies with caution. |
