A strong surge of 30%, Wall Street market may be decoupled, will the Bitcoin market recover?

If the most eye-catching event in the first half of last week was the fourth circuit breaker in the U.S. stock market in ten days, and the fifth circuit breaker in history, then after last Friday, the focus of the entire financial market was definitely Bitcoin.

After more than a week, Bitcoin has been languishing around the $5,500 mark, but it finally lived up to expectations. Last Thursday, the best intersection between the traditional financial market and the cryptocurrency market, Bitcoin also rebounded strongly while the public was exclaiming that the U.S. stock market had broken the historical record. This long-awaited large-scale rebound finally allowed the market to successfully regain the 6,000 integer mark, giving all cryptocurrency followers a reassurance.

By Friday, the price of Bitcoin continued to rise, breaking through the 6,700 USD mark. In just two trading days, Bitcoin achieved a remarkable increase of nearly 30%, setting a new high in the past week. Other mainstream currencies also rebounded in sync with Bitcoin. The entire depressed cryptocurrency market seemed to have finally recovered, ushering in signs of restarting the "independent market" against the general environment.

On the other hand, the US stock market seems to have fallen into a big pit, and there is no reversal, but it is getting worse. Analysts believe that the main reason for the recent surge in Bitcoin is that some people use Bitcoin as a risk hedge, acting as a risk lever for traditional financial markets such as US stocks. Moreover, with the continuous inflow of funds from the stock market, Bitcoin is likely to continue to rise, and the upward channel will continue to be opened. Of course, it has not yet reached the point of singing all the way, mainly because there are still many reasons at present. Whether it is for the market or from the perspective of investors, the conditions for its surge are not fully met.

Some people analyzed that it is basically impossible for Bitcoin to be below $3,800, and this "black swan" is nothing more than a cover. The U.S. stock market has no reason and can't find a reason to make up for all the bubbles before this. It is better to take advantage of the epidemic to explode, fall into the lowest valley, and achieve the best performance. Buffett lost $80.2 billion in a month, and his heavy holdings plummeted by 50%. This is undoubtedly because he couldn't buy the bottom. He was blocked halfway up the mountain, neither going up nor down. Perhaps, for such a value investor, choosing to buy the bottom at this point must be carefully calculated, because it is a loss anyway. Or maybe Buffett underestimated the market's reaction and despised the emotions of stockholders.

In the past two weeks, whether it is rising or falling, the decline of the Fear and Greed Index is really shocking. There is no doubt that the overall market situation is still very fearful. Everyone can even feel that the current market fear is more serious than last August.

What is the future prospect of the Bitcoin market? Should we go long or short?

Judging from the overall market situation, cryptocurrency enthusiasts seem to be optimistic about the future direction of Bitcoin. Especially after the U.S. stock market has experienced circuit breakers one after another in the past month, Bitcoin has always fluctuated with the U.S. stock market.

Obi Nwosu, CEO of Coinfloor, cited a liquidity crisis faced by large investors as one of the reasons for the nearly 50% drop in the price of Bitcoin. For large traditional investors, Bitcoin provides much-needed liquidity while the performance of traditional assets has been disappointing.

Santiment, a crypto data analysis company, also conducted an analysis of the correlation between Bitcoin and the S&P 500. The results are as follows:

1. Currently, the correlation between Bitcoin and the S&P 500 is at a two-year high;

2. Over the past 5 years, this correlation has changed cyclically: from negative to positive;

3. Historical data shows that a surge in the correlation between Bitcoin and the S&P 500 is usually accompanied by a sharp drop in the cryptocurrency market;

4. On the other hand, a gradual decoupling of Bitcoin from the Wall Street market usually heralds a recovery in the Bitcoin market.

Coincidentally, Raoul Pal, former head of Goldman Sachs' equity derivatives business and founder of Global Macro Investor, also said that despite the current global market crash, he is still optimistic about Bitcoin and even believes that the price of Bitcoin will rebound to an all-time high of $20,000 in the next 12 to 18 months. He pointed out that due to the world's response to the COVID-19 outbreak, there is a clear sense of insecurity in the social structure from politics to finance, and all trust in the "entire system" may have been lost, so he is more optimistic about Bitcoin than ever before.

Although Bitcoin made a breakthrough last Friday, it cannot be denied that the "whales" have been injured for too long and need time to recover, whether it is to make up for technical damage (a 50% plunge in 24 hours) or to repair market rifts. Most investors believe that it will take some time for Bitcoin to bottom out and rebound.

Technical strategist Rob Sluymer added to the notion that Bitcoin’s price action remains “severely damaged,” setting the stage for a prolonged bear trend.

“This past week’s crypto meltdown reflects the ‘get me out of it all’ panic that has dominated all asset classes, whether they are defensive or not. Bitcoin has lower highs and lower lows, creating a damaged and potentially vulnerable long-term condition.”

And, he further said that even if the bottom is reached, it will take "months of consolidation to repair the current technical damage."

There is no doubt that the epidemic will take time to dissipate, the U.S. stock market will take time to recover, and Bitcoin will also take time to repair. As Jack Tan said: After the stress test, Bitcoin and several other currencies will become stronger than ever.

This article only represents the author's views and does not represent the official position of Shilian Finance

This article is original to Shilian Finance, author: Suancaiyu, unauthorized reproduction is prohibited