Bitcoin Might have been the Precursor to Last Week’s Turmoil

Daniel L
Category:  Financial News
Suffice to say Bitcoin has been on one wild and volatile ride over the last few weeks. The BTC/USD market shed well over fifty percent of its value before mounting several shallow recoveries, including one this weekend, before losing ground. Some market watchers are asking if bitcoin’s turmoil was a warning that the global stock markets were due for last week’s correction.

This morning, in an interview with Trading Nation, Fundstrat Global Advisors’ Tom Lee thinks that bitcoin’s crash, from two months ago, might have been a signal that global equities were going to correct lower.

As the digital currency plummeted, investors fled from high risk or risk sensitive assets to safe haven plays. Lee said that "it could easily look like a chart that looks like the S&P, because both had a parabolic move and then subsequently gave back some of these gains.”

While it is an interesting take on things, the relationship between the two events is not very clear. Lee said that " the connection between the two is really, really limited."

He does see a parallel though. However, he views it as a psychological event that could explain how excitable investors become instead of a clear connection between the two events.

"In the past 12 months, not only did we have a strong rally in equities, we had a strong rally in cryptocurrencies," Lee said. "I wouldn't be surprised if those investors who saw risk-on assets everywhere outperforming globally were also buying cryptocurrencies."

Bitcoin could recover over the Year

The digital currency should recover over the year. Some analysts see the price of Bitcoin closing 2018 near $24,000. However, this recovery, as Lee sees it as well, is not “enough to move the needle on the stock market’s direction.” The value of bitcoin is simply not enough to be a clear market mover.

He also said that “Cryptocurrencies have their own economy based on activity on that block chain.” Equities have their own economy. The economy of equities is an economy is based on multiples of earnings per share.

Were the two corrective events related? In a way yes as the timing is interesting. Both were psychological events that reminded market investors that asset classes never move up forever without a hiccup.
Sign up and get free signals NOW!!!
  I agree to Terms and Conditions & Privacy Policy