The spirit of the stock market crash is back to haunt the bitcoins (BTC).
The last time this happened was in March 2020. At that time, the prospect of a rapidly spreading coronavirus pandemic led to a stalemate across developed and emerging economies. Global stocks fell in tandem again, and bitcoin lost half its value in just two days.
Meanwhile, the US dollar index, or DXY, which represents the strength of the banknote against a basket of the best foreign currencies, now has climbed by 8.78% to 102,992, which is the highest level since January 2017.
The huge inverse correlation showed that investors abandoned their stocks and bitcoins and sought security in what they saw as a better refuge: the dollar.
More than a year later, bitcoins and stock markets were once again struggling with similar bearish sentiment, this time driven by renewed demand for the US dollar for the hawkish tone of the Federal Reserve.
Namely the US Federal Reserve announced on Wednesday will start raising its reference interest rates by the end of 2023, a year earlier than planned.
Lower interest rates have helped pull bitcoins and the US stock market out of their bearish sleep. The benchmark cryptocurrency jumped from $ 3,888 in March 2020 to nearly $ 65,000 in April 2021 as the Fed pushed interest rates to 0% -0.25%.
Meanwhile, the S&P 500 rose more than 95% to 4,257.16 from a peak in mid-March 2020. The Dow Jones and Nasdaq gathered similarly, as the following table shows.
And that happened after Wednesday’s announcement of an increase in Federal Reserve rates …
The US dollar index, meanwhile, jumped to its two-month high, indicating a new appetite for dollars in world markets.
Popular on-chain analyst Willy Woo he said on Friday, the stock market crash along with the rising dollar could boost Bitcoin’s bearish outlook.
“Some of the risks of a negative impact if the stones refuel, a lot of rally in DXY (USD power), which is typical for moving money to safety,” he explained.
Michael Burry, also Head of Scion Asset Management an alarm sounded in the event of an immediate slump in bitcoin and the stock market, he added that when crypto markets fall from trillions, or when meme shares fall from billions, losses on the main street approach the size of countries.
“The problem with the cryptocurrency is, as in most things, the leverage effect,” he says tweeted. “If you don’t know how much leverage is in the cryptocurrency, you know nothing about the cryptocurrency.”
Burry later deleted his tweets.
Some bull hopes
In addition to the price action, the adoption of Bitcoin is still growing, which is a catalyst for the rise that was missing during the fall in March 2020.
CNBC on Friday reported that Goldman Sachs has begun trading bitcoin futures with Galaxy Digital, a crypto bank headed by former hedge fund mogul Mike Novogratz. The financial intelligence service claimed that Goldman’s call to hire Galaxy as its liquidity provider was a response to growing pressure from its wealthy clients.
Damien Vanderwilt, co-chair of Galaxy Digital, added that the traditional adoption would help Bitcoin reduce its infamous price volatility, paving the way for institutional players to join the cryptocurrency. Excerpts from his interview for CNBC:
“Once one bank does, the other banks will have it [fear of missing out] and get on board because their clients asked for it. “
Is bitcoin on the bear market?
Referring to the question “Are we in a bear market?” Woo said the adoption of bitcoin, despite the recent drop in prices, still looks healthy. The analyst cited on-chain indicators that show growing user growth and capital injection in the bitcoin market.
The primary interest is the rotation of capital from stablecoins back to cryptotroms (I will say this mainly BTC, because alternative coins reduce dominance).
All the dry powder sitting on the siding began to flow back inside. pic.twitter.com/v1jRDMD1sm
– Willy Woo (@woonomic) June 18, 2021
He also noted that the recent sale of bitcoins only shifted BTC from weak hands to strong hands.
“My only concern about the downside risk is if we see a major stock correction that pulls the price of BTC down, no matter what the fundamentals on-chain suggest. Noting the strength of the USD on the DXY, which suggests that some investors are moving to safety in the USD. “