Tech is Ruling Again, The Broad Market Working in Bitcoin’s Favor
- Technology is back to ruling the markets.
Bitcoin rallied on Monday to its highest level since early July 2019. The largest digital asset regained its mojo back towards the end of July and now stands strong as one of the best promising assets with 70% returns YTD.
BTC’s gains came amidst a wider risk-on rally in equity markets. The Nasdaq surged to a record high on Monday while S&P 500 briefly crossed above its record closing level set in February, both lifted by technology stocks.
Tech is apparently the only trade right now
“It is likely for the rest of this year we will see a continued push into technology and technology related areas of the market,” said Daniel Gerard, senior multi-asset strategist at Singapore-based State Street Global Markets.
But the lack of a stimulus package is causing some concern.
“The markets are in ‘show me the money' mode, perhaps erring on the side of caution, not holding their breath for an imminent deal in Congress,” said Stephen Innes of AxiCorp.
“Sadly, this leaves the U.S. real economy waddling and many businesses and millions of consumers getting the short shrift.”
Although the S&P 500 is called to be overbought by analysts, any consolidation is expected to be an accumulation.
Everything happening at the speed of light in 2020, in all fronts, from politics and economics, to stock markets and crypto.
— Alex Krüger (@krugermacro) August 17, 2020
In the current environment of ultra-low rates, Bitcoin is acting as an inflation hedge. Most recent yields have gone higher, which suggests increased expectations for inflation, which can pull buyers away from risky assets. US elections are also close, and no one wants to disrupt the markets.
US Bond Market is about to implode. The Fed is literally the only one left buying American Debt.
This will be the biggest capital flight event in history.
— Mati Greenspan (tweets ≠ trading advice) (@MatiGreenspan) August 17, 2020
Adding to bitcoin’s gains is the weakening US dollar, which softened against most currencies.
Moreover, there is speculation that the Fed will adopt an average inflation target, seeking to push inflation above 2%. Seamus Donoghue, vice president of sales and business development at METACO said,
“Inflation is currently low, but real yields are across the board negative — negative real yields and the monetary stimulus/spending has driven investors to seek out inflation hedges such as gold.”
“Given its limited supply and growing institutional acceptance, Bitcoin will also likely benefit from the market seeking inflation hedges.”
Just this month, publicly-traded $1.39 billion company MicroStrategy put $250 million in Bitcoin, and as a result, its stocks closed 15% higher.
Bitcoin not only acted as a reserve asset but also pushed the companies’ prices higher as happened with Jack Dorsey’s Square, which gained over 300% since it started BTC purchases in November 2019.
As Anthony Pomliano said, “It pays to embrace Bitcoin.”
“The best analogue for today is perhaps the Great Depression,” said Nicholas Pelecanos, head of trading at NEM.
“From the conclusion of this crisis to the years that followed, the price of gold more than doubled, rising with inflation, and it is this macroeconomic backdrop that makes Bitcoin so appealing to investors.”