Bitcoin, Stocks, Gold, and Everything Is Surging; ‘V-shaped’ Recovery or Bear Market Rally?
Since the start of this week, markets have been gaining steam, from Dow, S&P 500, to oil, gold, and Bitcoin, everything is recording gains. Last month, the Dow Jones Industrial Average crashed 37% from the all-time high in February and had its worst first quarter ever and the worst quarter since 2008. The S&P 500 also had its worst first quarter ever, plummeting 34% from its highs in mid-February.
Global markets took a hit as the coronavirus pandemic spread outside of its epicenter Wuhan, China. In a flight to safety, investors turned to cash and a liquidity crunch led them to sell everything they could.
During this time, the Bitcoin price also plunged about 63% from 2020 high of $10,500 it hit in February. Even gold, the traditional safe-haven asset suffered a loss which has been trading at multi-year highs just before this crisis and dumped 11.7%.
Brent crude oil got dumped 64% from January 6 high of $68.9 to $24.7 due to the oil price war started by Saudi Arabia and Russia. However, Brent Crude has recovered 40% of its value on the optimism that the OPEC meeting will result in a supply cut.
This month, these assets have started to recover. Since the beginning of April, Dow has seen greens of 12%, S&P 500 has jumped over 11%, Bitcoin gained 90%, and gold has also recorded a gain of 5%.
Why are we Uptrending?
But why exactly stocks are recovering even though the recession hasn’t really started?
According to Fundstrat Global Advisors founder, Tom Lee it is because the healthcare crisis from coronavirus is peaking fast enough. Italy, Spain, and New York are reporting a decline in the number of new cases and deaths that have the investors feeling positive. Also, “stocks over-reacted to pandemic” in the first place, he said.
The fact that the Federal Reserve moved fast enough with its money printing and cutting interest rates to stave off contraction is working in the market favor along with the consumers being more resilient that provided a “V-shaped” recovery. Lee said,
“We cannot ‘tell the market what to do' and if stock recover back to 2,793 (50% retrace), the market is telling us crisis end is faster than expected.”
Just a “bear squeeze”
However, not everyone is of the same opinion. Recently as we reported, former Goldman Sachs analyst, Raoul Pal said those expecting a V-sharp recovery in the third and fourth quarter are incorrect in their assumptions.
Nomura macro and quant strategist Masanari Takada said this rally in global equities is nothing but a “bear squeeze” rally driven by panicked exits from shorts that investors accumulated during the downturn. “It is best to assume that the rally is largely technically driven,” said Takada.
Stocks and crypto are rebounding because the coronavirus appears to be slowing. This is a bear market rally, and we are still in the early stages of the recession/depression. Though stocks and crypto were due for relief rallies, they're both still far from the bottom.
— MAGIC (@MagicPoopCannon) April 7, 2020
Because bitcoin continues to follow the stock market, it is expected the world’s leading digital currency can also make its way back to the south.
However, bitcoin believers like Mike Novogratz of Galaxy Digital recommends buying hard asset like gold and BTC as he shared his reasoning behind buying these assets,
“Money is growing on trees right now. I learned when I was a little kid that money really doesn’t grow on trees. We have a global, money-printing orgy going on … at one point that comes home to roost.”
Federal Reserve Balance Sheet at all-time highs.
And this has barely started. pic.twitter.com/ROm4Nt6SQC
— Daniel Lacalle (@dlacalle_IA) April 8, 2020
As the industry commentators have been pointing out bitcoin is not a hedge against falling stock markets but inflation and central banks printing money.
Already, the Fed has announced $2 trillion as a coronavirus emergency relief fund, now House Speaker Nancy Pelosi thinks another trillion dollars might be needed which means more “rocket fuel” for bitcoin.