Given the steady growth of bitcoin prices and the better performance of many other assets, hardly anyone now doubts that the notorious «Kriptonika» behind. Analysts explain the different reasons for such a sharp recovery in prices in recent months, starting from purely technical factors to the institutionalization of an emerging market of new assets.
It is widely believed that the mass adoption of the cryptocurrency and growth of their prices contributes to escalating trade war the United States and China, as well as the passion of the Central banks loose monetary policy to encourage exports and business activity. These factors accelerate the global crisis, the occurrence of which, given the cyclical nature of economic development and trends, is just a matter of time.
The appearance of the first cryptocurrency in January 2009 was a kind of response to the global crisis, which was then in full swing, and on the causes of the global recession, including due to the actions of Central banks that create financial bubbles.
In recent months, amid global uncertainty, there has been an interesting trend, which is resulting in a pronounced inverse correlation between bitcoin and stocks from S&P 500 index, a kind of barometer of the us economy.
In this article ForkLog magazine invites readers to analyze the correlation of bitcoin with traditional financial tools of the market and some Althingi, to consider why digital gold is rising in spite of negative news, and that can affect the rate of BTC in the near future.
Why the S&P 500 is called the barometer of the US economy?
Analysts SFOX showed multidirectional dynamics of prices of bitcoin, relative to the S&P 500 index, which is all the more evident in recent times. However, before finding out the reasons for what is happening, consider what this index is and why he draws the attention of analysts around the world.
S&P 500 — stock index, which includes 500 most highly capitalized American companies. It is published since 1957, is it the rating Agency Standard & Poor’s.
Shares of companies listed in the S&P 500 are traded on the largest stock exchanges NYSE and NASDAQ. In its popular S&P 500 competes with the Industrial index Dow Jones. Because when compiling the list of companies in the Standard & Poor’s is trying to present the most complete variety in the industry, the index is often called the barometer of the us economy.
In addition, S&P 500 included in the Composite index of leading indicators used by investors to forecast trends in the economy.
The index consists of 10 components, changes which usually precede economic changes in General.
Lots of investment, stock exchange, pension and other funds seeking to replicate the portfolio composition and yield of this widely tracked index. Thus, it is not surprising that the slightest fluctuation in business activity in the U.S. immediately reflected on the dynamics of the S&P 500. Given the global nature of world economy, changes in prices of this popular index materials react and other markets.
Is the stock market! What is bitcoin?
As already mentioned, bitcoin appeared in early 2009, when the deepest since the great depression crisis was in full swing. As seen in the chart below, the emergence of cryptocurrencies almost coincided with the bottom of the previous crisis:
Shortly after the advent of digital gold began a heated quantitative easing the strong recovery of the us economy. In the developed countries has reached a ten-year period of growth, low inflation and high prices of many assets.
Now, however, many experts believe that the world is on the verge of another global crisis. So, the graph below shows the ratio of the value index, commodities by the S&P 500 index:
This indicator is now at 50-year low. In the past, when this ratio was low, followed by the long period of stagnation of the stock market.
For example, after the previous low was a collapse of the index high-tech companies NASDAQ Composite. It is remarkable that the ratio of the value index, commodities by the S&P 500 is still lower than in the eve of the collapse of the dot-com — at about 1972. Then, half a century ago, formed the so-called bubble, the Nifty Fifty — the fifty most popular in the 60-70-ies of the stocks of U.S. companies that had fast growth and the ratio of prices to income.
In 1973-74 the shares of such companies plummeted bear market lasted nearly 10 years — until 1982. Since then, the term Nifty Fifty is sometimes used in financial circles as an example of the unrealistic expectations of investors regarding the growth of assets.
As analysts CoinMetrics, with the exception of the first year of life, bitcoin did not exist in the periods of global recessions. This fact leads many market participants to think about how the first cryptocurrency to behave in a new environment — against the backdrop of uncertainty and panic related to price fluctuations of traditional financial assets.
Experts believe that despite the lack of historical data, given recent events on the traditional market and in the response of bitcoin, it is already possible to draw conclusions about the susceptibility of BTC to the processes in a much broader macro environment.
The correlation of bitcoin with S&P 500, gold and other cryptocurrencies
Comparing the dynamics of traditional and cryptocurrency markets, analysts SFOX concluded that investors are increasingly considering BTC as a hedge instrument with fluctuations in the S&P 500 and other indices in order to strengthen the trade confrontation between the two countries-giants.
«Due to the ongoing aggravation of trade relations between the US and China may become one of the most turbulent months for global markets in recent history», — analysts say.
According to them, after the PRC announced may 13 on raising import tariffs on us goods worth $60 billion, S&P 500 fell 1.7%. The Chinese yuan reached a four-month low. However, against this background, the BTC increased by 7% from $7158 to $7679.
«From this point during the month, a negative correlation of bitcoin with S&P 500 was almost perfect. The correlation BTC with leading Althingi was almost perfectly positive.»
In SFOX also believe that investors can consider bitcoin as a «unique hybrid inherent in the gold stores of value and risk asset like the S&P 500».
Thus, it is possible that the demand for first cryptocurrency fuels growing global uncertainty and the crisis in a few countries, including Venezuela, Argentina, Turkey, which is peculiar to inflation, currency restrictions and political instability.
So, according to the portal Statista survey, every fifth inhabitant of Turkey used or owns currently the cryptocurrency. Note that in this country there are significant exchange controls, rampant inflation, unemployment and weak GDP growth.
Apparently, more and more investors view BTC not only as a defensive asset, but also as a tool of portfolio diversification, which are characteristic for higher returns than traditional assets.
So, according to analysts of the company of new York Pension Partners Charlie Bilello, ROI in the first game with the beginning of the year amounted to 111%.
Bitcoin $BTC: +111%
REITs $VNQ: +20%
The Nasdaq 100 $QQQ: +18%
Oil $USO: +16%
S&P 500 $SPY: +16%
Small Caps $IWM: +13%
EAFE $EFA: +12%
Investment Grade $LQD: +9%
High Yield $HYG: +9%
EM $EEM: +5%
Bonds $AGG: +5%
Commodities $DBC: +5%
Gold $GLD: +4%
Cash $BIL: +1%
— Charlie Bilello (@charliebilello) 8 June 2019 R.
For comparison, during the same period, the growth in oil prices was only 16%, the S&P 500 index also increased by 16%, gold 4%.
As for the noble metal, between these traditional asset and bitcoin observed strong negative correlation, which, according to the analyst CoinDesk Omkara of Godbole can serve as a kind of indicator for traders.
For example, on November 13, the price of the precious metal was $1200, and by December, the gold price got close to the psychological resistance level of $1300. At this time, the bitcoin fell with elevations of above $6,000 to $3122 on the exchange Bitstamp.
Thus over time the reliability of the indicator only rises. So, if in January the 90-day correlation coefficient between the two assets was -0.593, by may, this figure had reached -0.71. In simple words — in recent times increasingly noticeable as the price of bitcoin and gold are moving in opposite directions.
Why bitcoin is growing in spite of the negative news?
One possible reason is that the prices are usually more sensitive to react to positive news during a bullish phase of the market and thus are reluctant to fall under the pressure of a clearly negative event.
For example, when the Commission on securities and exchange Commission (SEC) postponed the decision on the ETF company Bitwise, the price of bitcoin fell, but, on the contrary, within about a day grew from $8010 to $8069 (+0.7%). According to the observations SFOX, in a similar way the first cryptocurrency has reacted to a similar decision of the SEC in respect of the ETF from VanEck, and SolidX — BTC grew by 0.3%, from $7910 to $7936.
«This may indicate that, despite the serious hype around the approval of bitcoin ETF, the market doesn’t care about it as much as, for example, about the possibilities of BTC to play the role of the hedging instrument in the context of global markets», — shared his thoughts SFOX analysts, noting that the low probability of approval of ETFs are likely to have been pre-digested by the market.
To the surprise of many investors, the price of bitcoin has not had a significant impact even hacking Binance, in which the largest crypto currency exchange lost 7000 BTC ($40.5 million at the exchange rate at the time).
«The fact that the hacking Binance has not led to a fall in the price of BTC reflects a much greater degree of maturity of infrastructure market, compared with the times Mt Gox», — noted in SFOX.
Thus, with the growth of capitalization and the mass adoption of the cryptocurrency market is becoming more liquid and not as volatile, and therefore less influenced by the seemingly very negative news.
What are the important future events can affect the exchange rate of bitcoin?
Grayscale Investments, the experts are confident that the long-term impact on the growth of bitcoin prices will continue to provide global uncertainty, one important factor which is escalating the trade war the US and China.
Analysts drew a parallel with the year 2016, when global markets reacted negatively to the referendum on the UK exit from the European Union and the Greek crisis 2015. On the background of these events, the first cryptocurrency has significantly strengthened its positions:
It should be noted that currently, many Central banks almost exhausted monetary tools to revive stagnant economies. For example, in many States and even negative interest rates:
Russia cuts rates by 25 bps to 7.50%, signals 2 more cuts this year. Global Central Bank rates… pic.twitter.com/qYzN58stNi
— Charlie Bilello (@charliebilello) 14 June 2019 R.
Analyst Omkar Godbole cited a number of other factors that could have a significant impact on the digital gold in the short and medium term. The first of them — cryptocurrency project from Facebook, which has supported a number of well-known companies.
Partner of Blockchain Capital Spencer Bogart convinced that the launch of the biggest social network of its own stablon significantly contributed to the mass adoption of bitcoin and cryptocurrency infrastructure development.
Facebook making a concerted push for digital asset adoption and creating a circular economy is great because it solves that friction point. Once people are holding/earning a digital asset, it’s relatively trivial to go from, for example, USDC to BTC.
— Spencer Bogart (@CremeDeLaCrypto) 11 June 2019 R.
Similar is the opinion of the Vice-President of the Blockchain Association of Ukraine Vitaliy Bulychev, considering the launch of Libra is good news for all kriptonyte.
That digital currency from Facebook will affect the prices of many of scriptaction, no doubt many other members of the crypto community.
The following factor of growth of demand for digital gold can become an overflow of capital from BNB in BTC, due to the restrictions for us investors to participate on the platform Binance.com.
In particular, such a scenario does not exclude the cryptanalyst Alex Kruger. In his opinion, may occur an effect comparable to «the April panic because of the Tether».
If you hold $BNB and decide to reduce exposure due to the incoming Binance news, yet want to maintain exposure to crypto, what do you do?
Sell $BNB, buy $BTC.
Which would represent a tailwind for $BTCUSD, similar to the $BTC tailwind during the April panic Tether. pic.twitter.com/8N5DoMdBNc
— Alex Krüger (@krugermacro) 14 June 2019 R.
In addition, the price of bitcoin reflects the influence of the approaching halving Litecoin, which, given historical data and cyclical price patterns can serve as a trigger phase of active growth of bitcoin and the market in General.
So I am sure Godbole, over the next several weeks possible test round at $10 000.
Among other important fundamental factors that can affect long-term growth of the BTC include:
- anticipated in may 2020, halving bitcoin, which will make BTC even more scarce asset;
- closely correlated with the price of strong growth Hasrat network of the first cryptocurrency;
- start trading deliverable bitcoin-futures-oriented whales platform Bakkt;
- the full-fledged cryptocurrency platform from Fidelity Investments and platforms from other large players;
- the development of infrastructure in General (decentralized exchange, neoscopelidae wallets, network, Lightning Network and promoting solutions such as Submarine Swaps, etc.);
- the growing popularity of cryptocurrency among retailers;
- the growing interest in new assets from institutional investors and other major participants in the traditional market, is indirectly evidenced by strong growth in trading volumes, bitcoin futures exchange, CME;
- start secured digital gold tokens, which increases the demand for the underlying asset;
- the introduction in the medium term in the bitcoin Protocol solutions that improve network performance and the degree of privacy of the transaction, etc.
Thus, mass adoption is coming, and the fundamental prerequisites plenty to be optimistic about the future and be confident in the long-term prospects of bitcoin and other cryptocurrencies.
Once bitcoin was created as a response to the shortcomings of traditional financial system, it is likely that he will fully manifest themselves in the course of the coming global economic crisis. Given the current global economic trends, the occurrence of this event is just a matter of time.
But do not forget about the high risk nature of new assets, and that invest in them wisely. The portfolio of a rational investor does not have to dominate the cryptocurrency because bitcoin can be used as a unique hedging tool, combining the properties of digital gold and something risky and profitable, reminiscent of stocks of technology companies.