Although the global financial slowdown and stall is not over yet, we see a very bullish stock market both in USA and China this week. In fact both are up considerably, with the Chinese stock market in Shanghai seeing its biggest surge in over two years. The Wall street exchanges followed suit in USA. And curiously so did bitcoin. Is BTC price now correlated to Wall St?
Since the pandemic, lockdown and global financial collapse over the past four or five months, bitcoin has been in the doldrums, not making much progress in price but then not staying suppressed for too long either. Any dip in price is being quickly bought up by bulls, thus pushing price back to expected levels. That being said, I personally see bitcoin as remaining undervalued at present.
The Wall St stocks are actually overvalued at present, considering the economic climate. The employment figures in USA and globally are still high as many businesses only now begin to emerge from lockdown. Staff have been laid off or hours have been reduced, bankruptcies continue to pile up and commercial, industrial and retail property prices may fall based on the inability of tenants to pay rent. As a result the stock market and economy could still fall further in coming months.
Markets usually run on sentiment, and at present the mood is conservative and cautious, not bullish or expansive. Smart money is waiting on the sidelines, or buying up all the bitcoin they possibly can. Yet with the stock market spiking like it did yesterday, one would never imagine that the economy is still so fragile. It may just be the newly printed currency by the Fed that is propping up the stock market right now. The real economy on the ground is not looking quite as healthy at all.
So if the stock market is potentially in for another dip, does that imply then that bitcoin will follow? Especially since it appears to be so correlated to stocks lately. Is bitcoin also in for another dip in price? NO one can say for sure and we can only speculate, but indicators suggest that even if there is another crash in bitcoin’s price, it will be brief because bulls will buy up the cheap bitcoin in preparation for the coming bull run.
I have seen in the past price action of bitcoin that it makes a sudden dip before making its next moonshot. Call it a “bear trap” if you wish, that is the official name given by traders to an apparent fake crash in price toward bearish territory which acts as a fake out. It lures bears or shorters, those keen to sell bitcoin, into making a sell order, only to bounce right back up and shoot to the moon. Thus the bears or sellers are trapped into making the wrong decision and all their bitcoin is bought from them by the bulls or eager buyers. It’s the bulls versus the bears, and they alone determine the final price of bitcoin at any point in time.
I would not be surprised if the stock market thus took another dip to the downside in coming weeks or months. I don’t see this economic crash as being over so quickly. Yet I’m concerned that bitcoin is so correlated to the stock market. I would be very surprised if bitcoin crashed again in price and failed to rebound within a day or two. At this point bitcoin would need to decouple its correlation to the stock market and will need to set a trend of its own, as it is destined to do, based on the math and the code built into the blockchain architecture.
I’m not an expert and this is not investment advice, only my opinion based on observation, but I foresee more sideways trading for some time and thereafter a gradual climb in price to the next ATH beyond $20k. It may be more delayed this time, due to the global economic collapse slowing down the velocity of money and drying up liquidity, as people stick to fiat for survival requirements under the tough conditions now. However, price must eventually begin its climb and test of the $20k ATH reached in December 2017. I was hoping it would be there by the end of this year, though that is in six months as I write this, and time is running out. So even if it takes longer due to the unique set of circumstances currently, I see it as merely a matter of time.
Nobody can stop this Juggernaut of bitcoin on its bull run after each halving of the miner block reward. That said, freak black swan events do occur, as we saw this year already. And China, where the majority of bitcoin is mined, is currently in one of its worst ecological disasters in years. Massive floods are washing away villages as I write this today. Ironically it is just this very same hydro facility that powers the electricity so cheaply in China, and this hydroelectricity is what makes mining of bitcoin so cheap in China. If these dams break or the hydro power system is compromised by the massive floods now, it may well disturb miners and the bitcoin output.
Add to that today’s discovery in China of a case of the Bubonic Plague, also known as the Black Death, a plague that killed off half of Europe in the Middle Ages. The case was discovered in Inner Mongolia, precisely where much of the bitcoin mining is carried out. So these Black swans or Black death or whatever, may well disrupt the mining of bitcoin, which is right there in the vulnerable areas of China right now. Therefore, be careful and stay informed, whatever your investments, especially cryptocurrency. Fortunately if China was to go offline, the rest of the bitcoin network will take up the slack in the other countries and the blockchain will carry on. Such is the beauty of bitcoin and the distributed ledger technology. That’s why I remain bullish long term, and so should you.
(image pixabay)
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