Bitcoin Rally or crash—what comes next?
When Bitcoin was sitting at the price of over $67K exactly 11 months ago. We recall as if it were today how many unprepared individuals went around buying the infamous Bitcoin. In the opinion of some traders, was on its way to $100K. Bitcoin was not even close to reaching $80K when many naïve beginners were persuaded to acquire it. Their emotions led them to make rash financial decisions. As of right now, when I’m writing this piece, one Bitcoin is worth $19,158.17, and whoever purchased Bitcoin for $60K likely has a devaluation of -$40,841.83 in his wallet. However, that only applies to individuals who purchased a Bitcoin at the time. For those who paid at least $1,000 for a Bitcoin, your wallet now has a negative worth of -$680.40.
It is challenging to inspire a novice investor who began investing impulsively after being seduced by the fame of a certain asset. And if a person who purchased Bitcoin at $60K hasn’t sold any of it since the market turned bearish due to fear or a lack of understanding of how to invest properly, that individual deserves respect and can no longer be regarded as an ordinary person.
This year, cross-asset correlations have worked out perfectly. We have discussed this subject more than once on a few occasions in the past. Two noteworthy examples are the inverse relationship between the dollar index and Bitcoin and foreign stocks. It’s time to assess where they are now that the year’s final quarter has begun. We will compare Bitcoin’s performance to the US dollar benchmark index DXY, Nasdaq, S&P 500, and Gold, as seen in the chart above.
Market Minute: Correlations with Bitcoin
Let’s first examine the relationship between DXY and Bitcoin (top chart). Arcane analysis indicates that BTC’s 30-day correlation to DXY has decreased to -0.64; this has only occurred 9 times since 2017. The dollar index has been in an unrelenting bull run this year due to higher yields, which has put pressure on global equities and digital assets. In fact, all riskier assets profit from settings with lower interest rates.
Similarly, during the past five weeks, the 30-day correlation between BTC and U.S. stocks has stabilized at roughly 0.7. When it reached these heights in April/May, it remained there for six weeks. The correlation weakened in the ensuing weeks and months. This is as a result of the crypto-contagion before resuming its upward trend to the present levels. These correlations prove that Bitcoin has risk profiles that are comparable to those of US stocks, whereas USD has the opposite risk profile.
The most significant association to be discussed in this article is that between Bitcoin and the conventional hedge Gold. This is reaching multi-year highs of 0.52 and indicates that the dollar flight is spreading. In contrast to prior risk-averse conditions, Gold is not experiencing inflows and is actually gaining strength versus the US dollar, unlike all the other riskier assets. Cash is king, and you know what that implies – significant inflows into USD — is the recurring theme in the current state of the currency markets.
