The ghost of the stock market crash is back to haunt Bitcoin (BTC).
This last happened in March 2020. At the time, the prospect of a rapidly spreading coronavirus pandemic caused lockdowns in developed and emerging economies. In turn, global stocks collapsed in tandem and Bitcoin lost half of its value in just two days.
Meanwhile, the US Dollar Index, or DXY, which represents the strength of the greenback against a basket of major foreign currencies, has now climbed 8.78% to 102.992, its highest level since January 2017.
The huge reverse correlation showed that investors ditched their Bitcoin stocks and holdings and sought safety in what they believed to be a better haven: the greenback.
Over a year later, Bitcoin and the stock markets are once again struggling with a similar bearish sentiment, this time led by renewed demand for the US dollar following the hawkish tone of the Federal Reserve.
Namely, the US central bank announced on Wednesday that it would start raising benchmark interest rates by the end of 2023, a year earlier than expected.
Falling interest rates have helped bring Bitcoin and the US stock market out of their bearish sleep. The benchmark cryptocurrency fell from $ 3,858 in March 2020 to nearly $ 65,000 in April 2021 as the Fed pushed lending rates into the 0% -0.25% range.
Meanwhile, the S&P 500 Index rose more than 95% to 4,257.16 from its peak in mid-March 2020. The Dow Jones and Nasdaq rallied similarly, as shown. the graph below.
And that’s what happened after the Federal Reserve’s rate hike was announced on Wednesday …
Meanwhile, the US dollar index jumped to its two-month high, suggesting a renewed appetite for the greenback in global markets.
Popular channel analyst Willy Woo mentionned Friday that a stock market crash coupled with a rising dollar could increase Bitcoin’s bearish outlook.
“Some downside risk if stonks build up, a lot of DXY (USD strength) rallying which is typical of a money move to safety,” he explained.
Michael Burry, the head of Scion Asset Management, also sounded the alarm about an impending Bitcoin and stock market crash, adding that when crypto markets fall by trillions, or when memes stocks fall by billions , Main Street losses will approach country size. .
“The problem with crypto, like in most things, is leverage,” he said. tweeted. “If you don’t know what crypto leverage is, you don’t know anything about crypto.”
Burry later deleted his tweets.
Some bullish hopes
Away from the price action, Bitcoin adoption continues to grow, a catalyst for the upside that was missing during the March 2020 crash.
CNBC announced on Friday that Goldman Sachs had started trading Bitcoin futures with Galaxy Digital, a crypto investment bank run by former hedge fund tycoon Mike Novogratz. The financial reporting service claimed that Goldman’s call to hire Galaxy as a liquidity provider came in response to increasing pressure from its high net worth clients.
Related: Hawkish Fed Comments Push Bitcoin Price, Stocks Lower Again
Damien Vanderwilt, co-chairman of Galaxy Digital, added that mainstream adoption would help Bitcoin reduce its notorious price volatility, paving the way for institutional players to join the crypto train. Excerpts from his interview with CNBC:
“Once one bank does this, other banks will have [fear of missing out] and they will be integrated because their customers requested it. “
Previously, other major financial and banking services, including Morgan Stanley, PayPal, and Bank of New York Mellon, had also launched crypto-asset services for their customers.
Is Bitcoin in a Bear Market?
Referring to the question “Are we in a bear market?” Woo said Bitcoin adoption continues to look healthy despite the recent price drop. The analyst cited chain indicators to show increasing user growth and an injection of capital into the Bitcoin market.
The main interest is the capital rotation from stablecoins to crypto markets (I will say this is mostly BTC since alt coins are declining in dominance).
All that dry powder sitting on the sidelines started to flow back. pic.twitter.com/v1jRDMD1sm
– Willy Woo (@woonomic) June 18, 2021
He also noted that Bitcoin’s recent sell-off simply moved BTC from weak hands to strong hands.
“My only concern for downside risk is if we get a major correction in equities that will pull the price of BTC down no matter what the chain fundamentals may suggest. Noting the strength of the dollar on the DXY, this which suggests that some investors are getting safe in USD. “