Coronavirus has led to uncertainty in the global financial markets. All the major indexes have plummeted over the past few weeks as the market crashes in the severity of the Covid-19.
In line with the global markets, bitcoin also crashed as investors took a risk-off approach due to global uncertainty. This crash in BTC prices had the crypto asset mirroring the stock market, leading to its highest ever 90-day correlation with the S&P 500 at 0.584. However, Qiao Wang of Messri Research notes,
“It's not so much that crypto and stocks are correlated. It's that in times of deflation + liquidity crisis, the entire world, including stocks, bonds, real estate, commodities, currencies, and crypto, converges to one trade. And that's the Dollar trade.”
The S&P 500 which made its all-time new high just a month ago before the market started crashing, is currently down 32% from these highs. This makes it the 12th bear market in US stocks with 30% negative performance, which is worse than that of 1928.
Ben Carlson, director of institutional asset management at $1.2 billion Ritholtz Wealth Management said, “The good news: there are 10 that were worse than this one. The bad news: this one's not over yet.”
FOR THE WEEK, S&P 500 DROPS 14.99%, THE DOW FALLS 17.30%, NASDAQ DECLINES 12.64%
— *Walter Bloomberg (@DeItaOne) March 20, 2020
A Huge Buy Signal
While the stock markets remain stagnant, this week, bitcoin seems to be decoupling from the risky assets as the price of bitcoin jumped to nearly $7,000 yesterday. Naeem Aslam, chief market analyst at AvaTrade said,
“Given the fact that the price has crossed the $6,000 mark – an important level of resistance – the upward momentum is likely to pick up the pace, and if the price crosses the 200-day moving average on a daily time frame, it would be a daily time frame, it would be a huge buy signal.”
Most of these upward price swings have been while the Euro and US stock markets were open, noted Nate Maddrey of Coin Metrics. Maddrey said,
“I think there’s a real chance that BTC decouples and potentially leads on the way up after this crisis has passed.
But I think it will likely stay correlated on the way down, or at least as long as the global liquidity crunch lasts.”
Holders Accumulating BTC
Yesterday, the digital asset surged over 32% but currently, Bitcoin is hovering around $6,200 having momentarily fallen to $5,865. Despite all these jumps in prices, the crypto asset remains a risk-on asset class, positively correlated to the S&P 500.
To have confidence in decoupling, BTC needs to hold up next time equities make new lows, said economist and trader Alex Kruger.
I was one of the 1st to put out this narrative of how "#BTC needs to decouple from traditional markets or it isn't ready to be what we think it can be" and…
This move has been beautiful
that isn't decoupling yet #BTC is off 40% from "recent" highs w/ DOW down 31%
— Mr. Anderson (@TrueCrypto28) March 19, 2020
Meanwhile, Bitcoin HODLers are taking this opportunity to buy the dip. The “Hodler Net Position Change” metric which shows the monthly position change of long-term investors is currently at above zero meaning holders on average are accumulating BTC.
In February, the metric was above zero that means holders were selling and taking profits as they stopped taking profits. However, over the past week, holders have started accumulating bitcoin yet again.