It’s Time to be Greedy: Bitcoin Trading In Opposite Direction of S&P 500, Correlation Drops 50%
Bitcoin is having a good time this week.
The world’s leading cryptocurrency is moving upwards, albeit slowly. This week started around $9,100 only to move above $9,400 on Tuesday and then next day another leg up above $9,500 and then another one above $9,600 yesterday.
Yesterday’s gains came in contrast to the equities market, which is a positive thing as bitcoin has been moving in line with the S&P 500 since the March crash. Bitcoin’s one-month correlation with SPX has also fallen to 38.7%, down from the all-time high of 78.8% on July 8, 2020, as per Skew.
“One of the most bullish BTC things happening today is that besides flashing some upside, it's trading inverse to SPY / QQQ,” said trader Jonny Moe.
In complete contrast to Bitcoin, S&P 500 closed down 1.23% on its worst day since June 26, while the Dow slid 1.31% on its worst day since July 9. These losses, much like the gains, were led by techs, and Nasdaq Composite, fell 2.29% on its worst day since June 26.
As we reported, the rallying tech and gold markets, while BTC was calm to the point of being a stablecoin, have been just catching up to bitcoin, which may finally be starting to see some shift finally.
Fascinating macro week. It's a huge moment for #gold yet #bitcoin (black) quietly slips past. In the meantime, tech bubble #NASDAQ quietly slumps. Tech is done. It is time for the real assets to shine. pic.twitter.com/Yy6qdbNqXH
— Charlie Morris (@AtlasPulse) July 23, 2020
The stock market isn’t looking good today either as Chinese markets record losses following the rising tensions between the US and Asia.
Investors’ sentiments are souring after the Chinese foreign ministry said it ordered the US to close its consulate in the Chengdu city in retaliation to the Trump administration ordering the closure of a Chinese consulate in Houston earlier this week.
“Worries over China-U.S. relations will dominate the market,” said Raymond Chen, a portfolio manager with Keywise Capital Management (HK) Ltd. “I expect more panic selling in the near term.”
China’s yuan fell to 7.0238 versus the US dollar while the government bonds extended gains. The US dollar index has also slipped to nearly a two-year low.
Not the Time to be Fearful or Bearish
This is turning out to be good for traditional safe-haven assets with gold rallying hard, surging to $1,897 today, just 1.2% away from its all-time high.
With bitcoin also recording the greens, the macro-environment might finally start pushing the digital asset higher as well.
The flagship cryptocurrency hasn’t been performing well for over two and a half months, stuck in a range. With every market risk-on, bitcoin needs to make some moves.
“I think that showing up fashionably late but with a bang would be more of Bitcoin's style. Specifically the banks custody news,” said trader Cantering Clark. “Remember, the crypto market is not an efficient market, there is a delay often.”
According to economist and trader Alex Kruger, this is actually the time to be greedy instead of bearish or fearful, especially with the US fiscal package coming and Fed’s upcoming policy change, which marks August 7th and September 16 as big dates.
“BTC, in particular, is only now trying to breakout. Breakouts after extended consolidation are for buying not selling. Both charts and current and future macro landscape favor being long,” he said.
Nothing to see here. pic.twitter.com/1vPC9RAkNA
— Sven Henrich (@NorthmanTrader) July 23, 2020
“Within the backdrop of massive money supply expansion and sovereign debt issuance, if the safest of government bonds offer near-zero yield, and only capital protection, then it's only natural that gold and bitcoin will significantly participate in that flow,” said trader Bob Loukas.