2009 was marked by the birth of Bitcoin and the beginning of an unprecedented bull market in the U.S. stock market-which has continued almost uninterrupted thereafter. However, the whispers of the crash are always there, and the noise has been getting louder recently.
In the context of COVID-19’s refusal to disappear, the stock market continues to rise with unprecedented government support. But now that the quantitative easing policy is no longer implemented, does the argument that the stock market crashes make sense?
If so, this may bring unfortunate news for Bitcoin (Bitcoin): It can be said that there are signs Strong correlation between Bitcoin and stocks. So, if the U.S. stock market hits a bottom and rebounds, what will happen to cryptocurrencies?
How likely is it to crash?
Excluding cryptocurrencies, the increasing speculation about the imminent crash does have some advantages. In June, the US inflation rate was significantly higher than expected.At the same time, the government continues to issue bonds and accumulate more debt, so much so that now people are talking about improve Debt ceiling.
The reason for this is of course the ongoing pandemic relief work. However, when other signs such as the U.S. stock market indicate that no bailout is needed, the government is injecting funds into the economy. The U.S. real estate market is also soaring, and the Fed has expressed concerns about investors becoming more and more reckless. refer to The appetite for meme stocks and cryptocurrencies is a good example.
All this money injected into the economy must be exhausted at some point, leading to reasonable guesses that the collapse may be an inevitable consequence. Cointelegraph columnist and full-time trader Michäel van de Poppe believes that “the expectation of a sharp correction is reasonable”, adding:
“a chance [stock market] As the market overheats-not just stocks, but the real estate market is showing similar signs. […] The market is entering a bubble stage, which is caused by the crazy printing of money by the Federal Reserve, and the middle class is being squeezed. “
AAX Exchange Marketing Manager Toya Zhang agrees that the crash is imminent, but urges caution when trying to predict the timing. “Considering the extent of the general decline in the stock market and the fact that the market is overvalued, I think the probability of the stock market falling is quite high,” Zhang said. “However, no one can say exactly when it will happen.”
Currently relevant, but how long will it last?
One question is: as early as March 2020, what is the connection between the recent market recovery of cryptocurrencies and the stock market? Most stock market analysts are surprised by the speed and speed of the recovery. Nevertheless, given how fast the world is turning to digital, the fact that the S&P 500 index is heavily biased towards technology companies explains a lot.
But in the field of encryption, the narrative is somewhat different. Without any other explanation for the crypto market crash, most people are surprised that Bitcoin’s behavior seems to reflect stocks. After all, people have always assumed that BTC is uncorrelated and can hedge more traditional asset types such as stocks and precious metals.
Based on recent experience, history shows that if the stock market crashes in 2021, the cryptocurrency market will follow. Another scenario is the stock market crash and investors immediately transfer funds to cryptocurrencies. Even without the hindsight of March 2020, this seems unlikely. Cryptocurrency is still known for being a well-known volatile asset that has been untested as a safe haven during the financial crisis.
However, what happened after the crash may trigger more interesting discussions about market relevance. What if the stock market does not enter the automatic recovery mode this time? Given that the impact of the pandemic has now been priced by the market, this situation is a reasonable assumption, and the uncertainty is much smaller compared to March last year.
If U.S. stocks remain flat or even bearish for a long time, what will BTC do? The most powerful premise of the “Bitcoin has nothing to do with stocks” argument is that Bitcoin has its own market cycle—related to the halving—that determines its price changes in a more convincing way than any external economic force. From this perspective, one can speculate that regardless of whether the stock market recovers after March 2020, BTC will continue to hit record highs anyway.
But even against the always reliable stock-to-flow BTC price model developed Through PlanB, the price has been Struggling within the boundaries recent. Nevertheless, the recent rebound means that the model has been established, and prices currently show significant prospects for a sustainable recovery. Therefore, even if the turbulence of the stock market will lead to chaos in cryptocurrencies, there are data predicting that the BTC market cycle may eventually restore its apparent iron-fist control over prices.
If there is a short-term crash, there is no evidence so far that Bitcoin prices will not be able to keep up. Assuming this happens in 2021, what happens after that may become a struggle between the Bitcoin market cycle and the effects of a long-term economic recession.
However, assuming that the influence of the former can even surpass the latter, this will make Bitcoin attractive as a safe-haven asset (in the absence of many other alternatives). If everything else is falling, BTC only needs to maintain its value to attract investors. But suppose that Bitcoin’s halving cycle proves to be able to completely offset the effects of the long-term market downturn. In this case, BTC may become one of the only assets that provide significant return opportunities during the economic downturn.
Sean Rach, co-founder of non-profit blockchain services company hi, believes that cryptocurrencies will eventually become an attractive asset for alpha seekers. “The growing dissatisfaction with the financial system, and the history of all fiat currencies, means that the search for alternatives is still a positive factor in the growth of the crypto market,” Rah said. At the same time, Mattie Greenspan, founder and CEO of consulting firm Quantum Economics, told Cointelegraph:
“In the short history of the crypto asset class, the token market has largely been aligned with other risky assets such as stocks and commodities. They tend to respond particularly well to central bank money printing. Despite this, cryptocurrencies have seen great growth. Space, because it’s mainly in the early stages of development. Therefore, even if we see the stock market peaking, I don’t think this will have any lasting impact on digital assets.”
Finally, it’s worth remembering that crashes are short-term events. They may be painful, but in the long run, things will become more interesting. Suppose the stock market enters a sustained bear market when the macro economy recovers. In this case, once the cryptocurrency bottoms out and rebounds, it can easily become an opportunity for investors to bargain. Therefore, although short-term correlations may be difficult to avoid, in the long run, cryptocurrencies are likely to reverse the market.