For the longest time, one of the strongest cases in favour of Bitcoin has been the Store Of Value claim. The asset has outperformed Gold and Silver and pretty much every stock out there in the past decade.
But last week we saw an unprecedented market sell-off that went on hand in hand with the S&P500 which raised the alarm to many. Indeed, Bitcoin has acted as a non-correlated asset in the past and for many an investor it was a safe hedge against other investments but what we saw in the past couple of years, is a great appetite for it from institutional investors.
Bitcoin was added to the portfolios of many a hedge fund, banks and other institutional investment funds which added the cryptocurrency to their books. At first we were rather excited by this simply because it gave Bitcoin more credibility and worldwide acceptance. In hindsight, I can’t help but think… maybe that wasn’t such a good thing after all.
As we are dealing with the effect of the Coronavirus (which was grossly underestimated by most of us), it becomes evident how the real economy and the cryptospace are two pieces of the same mechanism.
As we see in the graph, the MA200 has been providing support to both BTCUSD and S&P500 (for S&P in the last ten years for BTC as far as the goes).
As you can see on the chart, it supported BTC in mid 2015 on a multi-month span while S&P in Jan/Feb 2016. Then things get really interesting as the made contact with both BTC and S&P on the exact same times: the December 2018 lows and now on the current weekly candle, which of course as we know broke through.
The key however on this move is this: for S&P the candle’s wick retraced back above the MA200 and closed the candle above it. We have seen in 2015 that when that happened on Bitcoin (1W candle closing above the MA200), the downfall was contained and gradually started building an uptrend. It is therefore important to see the current 1W candle close above the MA200 now.
The MA300 is the level where this week’s candle both on BTC and S&P found Support. This goes to show just how correlated the two have become during this time of crisis. The price almost hit the MA300 level and rebounded making that long wick, which on S&P closed above the MA200 and on Bitcoin it remains to be seen. It needs to be said that the MA300 has never been touched on Bitcoin while on S&P500 the last contact was in December 2011.
In other words: Do not hope for a new recession!!!
Indeed, the above similarities show that cryptocurrencies are just another speculative asset class and people (especially in times of panic, geopolitical unrest and other crises) treat it as such. Human psychology in states of fear (or equally euphoria) is identical both when trading stocks and cryptocurrencies alike.
And the more “institutionalised” Bitcoin gets, the more often we will see it correlating to Wall Street behaviour.
In conclusion: Bitcoin buyers learned this week that expecting a new global recession and meltdown of the financial system in hopes that it will boost Bitcoin’s price, won’t do any good. Bitcoin has the capacity to outperform S&P500 and any other traditional asset in the coming years, but will be affected just as much by a global recession, simply because investors will be liquidating their assets in fear (like they did in the past few days.) With this said, the future of Bitcoin is not bleak but the Store-Of-Value case for Bitcoin is now debunked. As much as we wanted it to be the real SOV compared to Gold, as it turns out, when panic prevails, people are quick to sell. With Bitcoin being a digital asset and therefore much more liquid and easier to sell, that becomes its weakness too.
To end on a positive note, in the long term, Bitcoin will still outperform all other investment instruments, assets and even Gold. The only point I am making in this post is that it is no longer a safe haven in times of a global crisis.
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