Bitcoin & Gold Crashes as S&P 500 Races towards All-Time High
After making a bullish start of the week, by surging past $12,000 only to drop, bitcoin is continuing its descent. The largest digital asset has gone down to under $11,300 in red by 2.76% while managing $2.2 billion in ‘real’ trading volume.
These losses came despite the bullish news of billion-dollar Nasdaq-listed MicroStrategy becoming the first publicly-traded company to buy Bitcoin. The company purchased $250 million worth of BTC as a reserve asset in its search for yield and an inflation hedge.
However, digital gold is not alone in running the streets red. The precious metal is also falling; gold has been having a rough couple of days.
The Driving Force
After surging to its all-time high of $2,075 on Friday, the yellow metal has been on a pullback. Today, the spot price of bullion went down as low as $1,937 and is currently trading around $1,945.
“This is a rates driven correction. The bond market is in charge,” said trader and economist Alex Kruger. “Bond prices => yields => dollar => metals.”
Rates are the primary driving force behind not only those moves that involve the dollar but also for gold, he said.
“This is all BTC bearish. With a little luck can have some proper wicks lower to get some fills,” Kruger added.
This makes sense given that the one-month correlation between bitcoin and gold has spiked to an all-time high of 68.9% on August 7th, as per Skew. This has been exactly opposite of what's going on with the one-month correlation of bitcoin and the S&P 500, which has fallen to 23.6% from ATH of 78.8% in early July 2020.
So, it’s no wonder that today's equities market is enjoying gains, outpacing previously flying tech stocks. As yields went up, there has been a “rotation from tech to “epicenter” stocks,” akin to what has been seen in the Dow and small caps as well.
Equity Markets to ATH
S&P 500 is nearing its all-time closing high from February, just 0.38% down from the ATH, after White House officials and top Democratic lawmakers indicated on Monday that they were ready to resume talks on the new coronavirus aid package.
President Donald Trump also suggested he was considering a tax reduction for “middle income” earners. Moreover, Trump is closing the gap on Joe Biden's presidential election opinion polls, which is working in the market's favor.
On the coronavirus front, the number of new cases in the US has fallen 18% over the past 14 days. Meanwhile, Russia has registered the world's first COVID-19 vaccine, said President Vladimir Putin today.
Bitcoin’s Time to Come
A combination of fresh hopes for another stimulus package and signs of pandemic spread slowing are boosting the stocks.
Even the bubbling tensions between the US and China, reignited by a dispute over TikTok, might not affect the markets much as Goldman Sachs analysts expect an estimated 1.2% decline in SPX for an unexpected $10 billion increase in US tariffs on China.
In contrast with bitcoin, the US Dollar has also recovered somewhat, currently at 93.43 from the lows of 92.50 from last week, last seen over two years back.
However, BTC is holding firm above $11,000; up 60.32% YTD and new highs could come soon too.
“Bitcoin's 4 Year Cycle suggests that it will be in 2021 where we will see peak euphoria and a new All-Time High for BTC,” said analyst Rekt capital. “In 2021, simply holding Bitcoin will be the most optimal investing strategy.”