3 reasons why the US stock market crash may lead to Bitcoin following the crash
Recently, investment banking experts on Wall Street in the United States predict that the U.S. stock market may collapse in the short term. Even financial experts combined some digital asset trading platforms and digital asset storage institutions to give three main factors to predict that Bitcoin may follow the US stock market crash. In fact, I always thought that the financial elites on Wall Street have always held a unified opinion on digital currency (in fact, mainly for Bitcoin).
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The rebound in US stocks peaked, and a new round of panic intensified
Experts in financial markets and the cryptocurrency industry expect a major stock market correction in the short term.
Reuters' financial headline said: "U.S. stocks: record biggest one-day drop since March 16 due to renewed epidemic fears and Fed's pessimistic forecast. Economic data seems to support the Fed's bleak economic forecast, initial jobless claims Still more than double the peak in the recession, and continuing jobless claims are still at a staggering 20.9 million.” Tim Ghriskey, chief investment strategist at Inverness Counsel in New York, said: “Everything is selling,” Ghriskey added "People are worried that the stock market has peaked."
Given the high correlation Bitcoin (BTC) has observed with stocks over the past three months, Bitcoin is likely to follow suit.
Double-digit declines in airline stocks after the Dow Jones Industrial Average fell about 7% on June 11 led to extreme volatility in U.S. stocks. A confluence of three factors appears to have sparked the stock market's massive volatility:
Uncertainty surrounding the COVID-19 pandemic;
Institutions turning to stock for cash and bonds;
Significant geopolitical risk.
Since March, Bitcoin has shown a correlation with the U.S. stock market. Source: Skew
Yoni Assia, CEO of eToro, a multi-asset brokerage giant dedicated to cryptocurrency trading, warned: “In the next three weeks (the stock market) is about to crash, someone (not sure who) will sell/ Shorting your own position and wrecking the market. Investors beware, be warned to clear positions.”
The main reason for Assia's prediction of the stock market plunge is that retail investors have mainly driven the stock market rally since March. He emphasized,When retail investors support a rally, it often results in a sharp pullback. This trend is similar to Bitcoin’s price hitting $14,000 in June 2019, only to drop to $7,500 just three months later, a 46% drop.
Although central banks are printing more money, "theWe will (see) a pullback as this rally appears to be fueled by retail investor speculation. Historically, these rallies have all ended in pullbacks. "
Speaking to Cointelegraph, Quantum Economics co-founder Mati Greenspan said:
“I agree with his (Assia) assessment that the stock market rally is driven by retail investors, so it could end badly. We have been in a bearish position in the stock market since Monday. Interestingly, these stocks have been in the same position as Bitcoin. The correlation between coins has only recently strengthened, which seems to indicate that Bitcoin is driven by institutions.”
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1. Declining appetite for high-risk assets
"Investors have a lot of cash," Winifred Cisar Stieglitz, head of credit strategy at Wells Fargo, explained in relation to Bloomberg's real yields. But she said investors preferred investment-grade or low-risk bonds to stocks. Institutional investors and high-net-worth investors believe that "global stock markets are too risky to take a position in equities".
In addition to existing investors and retail traders in the cryptocurrency market, the demand for Bitcoin in the past few months has come from two sources: Grayscale Bitcoin Trust (a US cryptocurrency investment institution) and Tether (USDT), a stablecoin backed by USD collateral. of Chinese investors. Research firm Diar reported in June 2019 that 62 percent of Tether’s on-chain activity came from Chinese investors.
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2. Billionaires leave risky assets due to uncertainty in stocks
andHedge Positionsandcash reserves, rather than entering the stock market. "I think it's almost impossible to predict where consumer and business demand is going to come from," Cuban said on CNBC's closing session on May 14. "So it's hard to create valuations for businesses."
Hedge Positions: It is a financial transaction method, and the Chinese name from the financial point of view is the lock. Locking is a controversial practice. Many people in the market think that there is not much difference between locking and stop loss and profit.
mark cuban: The owner of the Dallas Mavericks in the NBA, and one of the most famous investors in the United States.
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Fear and Greed Index for the entire market. Source: Arcane Research
The International Monetary Fund (IMF) has raised similar concerns, warning that "the pandemic is likely to distort economic data and make it difficult for central banks and investors to assess". "Accurate and timely economic data are critical to inform policy decisions, especially during crises. But the COVID-19 pandemic has disrupted the production of many key statistics," the IMF said in a blog post.
At a time when policymakers and major banks are finding it challenging to properly digest economic data, it is nearly impossible for retail and institutional investors to fully understand market dynamics. As a result, high-net-worth investors have been avoiding the stock market. If they also view bitcoin as a risk asset, the likelihood of institutional inflows into cryptocurrencies could climb.
The moves by the Federal Reserve (fed) and other major central banks, including the European Central Bank (ecb), to boost their respective economies are further signs of weakness in the global economy, which could affect demand for riskier assets.
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3. The technical structure of Bitcoin is weak
Bitcoin is on a further downtrend, and a strong pullback is inevitable in the months ahead. Crypto trader Satoshi Flipper said: "The moment of truth is here for BTC bulls...lose this level and the next 6 months will be painful. Or flip 10.4k ($10,400) and ATH before year end (All-time high)."
Top crypto traders worry that Bitcoin is vulnerable to a deep pullback due to the historic $10,500 price level. Since the third quarter of 2019, BTC has refused to fall below $7,000 every time it has come close to rising above it.
Arcane Research said in its latest weekly report to clients, "Crypto markets tend to fall along with stock markets". Its researchers pointed out that it is difficult to see fluctuations in the price of Bitcoin before the fluctuations in the stock market. Therefore, the weak technical structure of Bitcoin, coupled with the tendency of Bitcoin to fall sharply when the stock market falls back, makes Bitcoin appear in the short term in the long term. Increased possibility of callbacks:
“Yesterday’s week of sideways price action turned negative as global markets dragged down crypto markets. While the correlation between equities and crypto has been on the decline lately, we can’t deny the clear parallels between yesterday and the past.”
Arcane Research also highlighted that "all the uncertainty is going to run across the market," with the fear and greed index falling back into the fear zone after stocks retreated on June 11. All assets and stores of value, including stocks, gold and cryptocurrencies, fell, likely sparked by a sell-off by institutional investors taking advantage of record-high demand from retail platforms like Robinhood and Charles Schwab.
Disclaimer: This editor does not hold any digital currency at the time of writing.
