After reaching highs of $7,470 last week, Bitcoin has seen a strong reversal over the past few days, falling as low as $6,580 earlier today in a spectacular fashion, liquidating dozens of millions worth of long positions in the process.
Although it isn’t easy to gauge the collective thoughts of the crypto diaspora, it seems that the crash was related to another bout of weakness in the stock market.
The Bitcoin crash that can be seen on the right of the chart above almost perfectly coincided with the open of the futures market of the S&P 500 index, which immediately plunged on the Sunday evening open after the best weekly rally in decades.
Thus, as prominent analysts have continued to claim that the S&P 500 isn’t done falling, crypto investors may need to be cautious as well.
Stock Market Could Tumble Once Again
Despite a rapid 25% “bull market” from the lows seen in March, analysts are not yet convinced that the worst is behind the S&P 500 and the broader global equity market.
Robert Breedlove — CEO of Parallax Digital, a Bitcoin-focused hedge fund and consultancy — shared the below data, showing that over the past few weeks, the U.S. dollar and gold have been rallying in tandem. Both assets are at multi-year highs.
USD and Gold rallying in unison indicates true market sentiment right now: fear.
Gold's market cap is just latent demand for #Bitcoin, which is superior across all traits of money (divisibility, durability, portability, recognizability, and scarcity).
Markets zero-in on truth. pic.twitter.com/a950MopcVe
— 🔨Robert Brrrrrrrrreedlove (@Breedlove22) April 12, 2020
Furthermore, last week two of the biggest store of values in the world — the Japanese yen and Treasury bonds — were rallying.
The fact that traditional stores of value are rallying in tandem with the stock market suggests that many investors aren’t convinced that the bear market is over. As Breedlove wrote:
“USD and Gold rallying in unison indicates true market sentiment right now: fear.”
Indeed, Scott Minerd — the global CIO of Guggenheim Investments, a financial services and investment firm based in New York — explained in a note published last week that he expects “the other shoe” to drop in global markets, which will cause yet another wave of panic in the market:
We need to see the other shoe drop. When the markets start to see some of the data on unemployment rising and economic growth and corporate earnings contracting, there will be another level of panic in the market.
Minerd went as far as to say that should things play out as he expects, he could see the S&P trade to 1,500, now almost 50% lower than the index trades at today.
Bitcoin Will Be Affected
While many laud Bitcoin for its perceived ability to be largely uncorrelated with the rest of the world’s markets, investors are certain the cryptocurrency will be negatively affected if the S&P 500 bear market drags on.
In the April edition of “Crypto Trader’s Digest,” the newsletter from the desk of BitMEX CEO Arthur Hayes, Hayes remarked that despite the recent performance of both stocks and crypto, he could see Bitcoin retest $3,000, calling the chance this happens “absolutely [likely …] if the S&P 500 rolls over and tests 2,000.”
He attributed this thought to the fact that in a global bear market, the correlation between all assets approaches one.
Chris Burniske of Placeholder Capital echoed this sentiment to a T, so to say.
Burniske, who coined the term “crypto-asset,” wrote in a Twitter thread in March that if “global markets freak out again” and see a “sell everything moment, […] there are any number of lows in the $5000s, $4000s and $3000s that BTC could reach.”
— Chris Burniske (@cburniske) March 21, 2020
Whether or not the potential new low in the Bitcoin market will be below $3,700, the low of the “Black Thursday” crash, remains to be seen.