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Bitcoin believers are back to watch stocks after the crypto crash

Bitcoin believers are back to watch stocks after the crypto crash

After a period of turmoil and heartbreaking existential angst, digital asset investors are once again focusing on the mood of the US stock market to gauge whether the worst may be over.

Stocks have mostly risen in recent weeks, as has Bitcoin, which is up around 25% since the start of July. The 90-day correlation coefficient for Bitcoin and the S&P 500, after weakening slightly in June, is again around 0.65, among the highest such readings in Bloomberg data dating back to 2010. coefficient of 1 means that the assets evolve in parallel. , while minus-1 would indicate that they are moving in opposite directions.

Cryptocurrencies are poised to outperform “if stocks have bottomed out,” Bloomberg Intelligence analyst Mike McGlone said. “There are few more powerful forces in the markets than when the stock market falls at high speed like in the first half of the year. Cryptos are part of this falling tide.

On Monday, bitcoin rose 4.2% to $24,241, the highest since late July. Other cryptocurrencies also rose, with Ether adding 5.6% at one point to hit $1,818.

This has been the refrain all year, with stocks and crypto moving alike. The backdrop is a hawkish Federal Reserve scrambling to bring down inflation, which has been high for four decades, which has been the source of volatility for all kinds of assets in 2022.

But whether stocks and crypto have bottomed out is a question no one can call with any real certainty. The lows are only noticeable after the fact, and it is possible that both will revisit their lows later this year or even early next year.

Bitcoin’s active addresses are firmly in “a well-defined downtrend channel,” according to analysts at Glassnode, a crypto researcher. They added that the network’s activity “suggests that there is still little influx of new requests”. But at the same time, transactional demand has either traded sideways or declined in recent weeks, suggesting that “only the stable base of high-conviction traders and investors remains.” And on-chain transaction fees are in bearish territory – seeing a spike could be a signal for recovery, once that happens.

“The 2022 bear market has been historically negative for the digital asset space,” the analysts wrote in a note. “However, after such a prolonged period of risk aversion sentiment, attention turns to whether this is a bear market relief rally or the start of a sustained bullish impulse.”

July was a great time for Bitcoin, Ether and others. Bitcoin rose 27% for the month, the most since October, while the No. 2 token added 70% to its best monthly performance since January 2021. Also during the month, total stablecoin Tether volumes for Bitcoin and Ether rose, according to CryptoCompare, suggesting that investors viewed them as safer places in the crypto universe.

Of course, although the crypto has rallied in recent weeks, it is still far from its highs reached towards the end of last year. Bitcoin hovered around $24,000, down from nearly $69,000 in November. And even eye-catching developments, including Coinbase’s new partnership with BlackRock, were unable to shake the coin from its stupor and catapult it higher.

“Crypto has more volatility, so it’s riskier, and it would make sense that investors needed to restore confidence after the downdraft they’ve been through,” said Katie Stockton, founder and managing partner of Fairlead Strategies. , a research firm specializing in technical analysis. . Still, she added that crypto investors are inspired by stocks, but the relationship works both ways. “That seems reasonable as both are risky assets.”

Reporting by Vildana Hajric for Bloomberg News.

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