US GDP plunged at an annual rate of 32.9% from the previous quarter. This is a horrific figure never seen before. Bitcoin has shown a high correlation to S&P 500 during the crisis. Should the stock market crash Bitcoin and the rest of the cryptocurrency market is very likely to follow suit.
Any stock market crash is likely to be followed by a powerful QE by the Fed. Similar measures will likely be taken in other countries as well. What Bitcoin being a risk-on asset instead of a safe haven means is that its valuation will be controlled by central banks.
Do you think the stock market will crash again this fall? If it does, will Bitcoin take another plunge before new stimulus packages by the US Congress and similar measures by other countries across the world and QE by central banks take effect and send BTC to the moon? What do you think?
That is a very good question. At first thought. Yes. However at some point the correlation between the two will break. At some point...
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One of the problems with inviting institutional money into the crypto space is that institutions (like banks and hedge funds) are largely the cause of many of the market's troubles. If things start to fall apart, they will want to hedge against losses, which might include pulling out of crypto and parking money into "safe" investments. So, yes. The more entrenched financial markets get into crypto, the more correlated we will become.
However, I think this will only occur up to a point. The reason we are so much affected by the market is that Wall Street is largely in fiat and making their way into crypto. In the long-term, once they are largely into crypto and partially into fiat, we may not see the same problems. The built-in features of crypto would tie the hands of institutions. For example, we can't print more BTC to bail out failing institutions.
In other words, it's only during this transition period that we may correlate with the market. Once institutions are largely invested in crypto, we may be more resilient, which is actually a benefit to the institutions as well.
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If only retail investors were in crypto, they'd also be likely to pull out during trouble. But because of the rules they're operating under, institutional money has to ditch the riskiest assets first.
As for the rest of your comment, I hope you're right.
If the stock market was based on any connection to fundamentals, March’s crash would have just been the start of a downward spiral. Instead it recovered and is flirting with an ATH.
That said, I would not be at all surprised to see the Fed openly buying equities. When then does the house of cards collapse?
Bitcoin is so tiny compared to equities that I could see it actually going up significantly perhaps because equities crashed and investors fled to crypto and gold for some version of safety.
But, meh, I’ve been wrong before about market timing. 😜
I think we can put the idea that the stock market is driven by fundamentals to rest.
All the major central banks have no choice but to keep buying equities. Bitcoin and the rest of the crypto space seem like the only road leading anywhere else but socialism. :)