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How Turning Stock Market Sentiment Could Drag Bitcoin Down Further

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Last week closed with a brutal drop in the stock market and a $2,000 plunge in Bitcoin. While there’s a chance that what’s going on across the crypto market was profit-taking, turning stock market sentiment could end up dragging down Bitcoin, Ethereum, and other top crypto assets much like it did during the Black Thursday market collapse.

Will such destruction return to stocks and in turn, crypto? Here’s the case for why that is possible.

Crypto Mania and Stock Market Bubble Brace For Further Collapse After Initial Crash

Following last week’s pullback across markets, investors are wondering if the stock market mania is over and if the mini crypto bubble built on DeFi hype has popped.

With investors in these markets well in profit buying in at any point earlier in 2020, profit-taking could be the cause, and the rally could continue. However, a telling sign – sentiment sharply turning down – could be a forewarning of another dangerous, Black Thursday-style drop.

S&P500 Daily Sentiment | Source: MacroCharts

Thus far, the price action in both Bitcoin and the S&P 500 has been similar to that mid-March day.

RELATED READING | RECENT BITCOIN TOP SHARES KEY SIMILARITIES WITH BLACK THURSDAY PLUMMET

Bitcoin led stocks in the recent dump, and now both assets have fallen to support where former highs were set in early 2020. Will the cryptocurrency and the stock market hold at these key levels, or is sentiment turning down a sign that prices will soon follow?

Why Bitcoin Must Survive The Negative Sentiment Surrounding Tech Stock Overvaluations

Stocks tumbling further could take Bitcoin down with it due to the ongoing correlation between the traditional asset class and the cryptocurrency that appeared in early 2020. Bitcoin had briefly shaken the correlation to be more on par with gold’s path, but the similarities have since returned.

bitcoin stock market btcusd sp500

BTCUSD Versus S&P500 Correlation | Source: TradingView

The main difference, however, between stocks and crypto, is the fact that there is a full-blown mania ongoing throughout tech stocks, that may have only just started to crash back to reality. Top tech stocks lost trillions in three days, taking the rest of the market down with them.

RELATED READING | WHY HAS BITCOIN BECOME A LEADING INDICATOR FOR THE S&P 500?

Bitcoin, however, is at a crossroads. The cryptocurrency’s halving is in the past, and technicals are pointing to a new uptrend taking hold. The crypto market collapsing again under the weight of the stock market downturn could take the emerging asset class down deeper into a bear market.

But if Bitcoin rises while stocks fall, it could see a boost from buyers seeking to move capital to follow profits.

With Bitcoin’s market cap so small in comparison to the weight of top tech stocks alone, if stock money flows into Bitcoin, predictions made from the stock-to-flow model will be reached in no time flat.

Featured Image From Deposit Photos | Charts From TradingView and MacroCharts





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3 reasons why Bitcoin price has not been able to rally back above $40K

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The ongoing story for the past couple of months in the cryptocurrency market has been confusion on whether Bitcoin (BTC) is destined for another leg down or is finally ready to break out toward new highs.

Bitcoin’s price history and data from previous corrections suggest that the current struggles for the top cryptocurrency could persist for a little bit longer due to the strengthening dollar, the possibility of decreasing economic stimulus and a slew of technical factors connected to Bitcoin’s price action.

A strong dollar threatens Bitcoin’s recovery

According to data from Delphi Digital, one of the biggest factors placing strain on risk assets around the globe is the strengthening U.S. dollar which appears to be attempting a trend reversal after falling below 90 in late May.

DXY 1-day chart. Source: TradingView

Rising dollar strength put a halt to the year-long uptrend in the 10-year US Treasury yield which is also a reflection that the economic expansions seen in the first half of 2021 are beginning to lose steam and there is a threat that a new wave of Covid-19 infections threatening the global economic recovery.

Fractals and the Death Cross suggest the correction is not over yet

The short-term outlook for Bitcoin remains bearish as previous instances of the “Death Cross,” which appeared on BTC’s chart in late June, have been followed by a corrective period that can last for nearly a year.

Bearish crossover of the 50 day and 200-day MA. Source: Delphi Digital

According to the analysts at Delphi Digital, the 12-month moving average is being tested as support, and a dip below this level would signal further downside for BTC price.

Bitcoin price testing the12-month moving average. Source: Delphi Digital

The 12-month moving average has been a key support level for Bitcoin historically, so how the price performs near this level could dictate whether the current uptrend remains intact.

Related: El Salvadorians take to the streets to protest Bitcoin law

Overall, caution is warranted for traders because low volumes have historically led to higher volatility when fewer open bids can lead to rapid price fluctuations.

As explained by Kevin Kelly, a certified financial analyst at Delphi Digital, “the short-term outlook turns quite a bit more bearish if and when we break those key levels” near $30,000.

Kelly said:

“I don’t necessarily think that we will see as nearly as significant of a drawdown as we did in say, post-December 2017, early 2018, and into the end of that year. But I do think, just given the structure of the market, that we could potentially be in for a bit more short-term volatility and potentially some more headwinds here, in the near term.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.