Bitcoin has completely overridden its widespread correlation with the US stock market.
On Thursday, the benchmark cryptocurrency was able to resume its weekly gains as its price rose more than 1 percent. The move briefly pushed the price above $ 13,000 before a modest pullback brought it back below levels. Overall, however, the trend for Bitcoin appeared extremely positive.
Bitcoin retests the $ 13,000 resistance as the latest sign of prolonged upward momentum. Source: BTCUSD on TradingView.com
Bitcoin retests $13,000-resistance in the latest sign of extended upside momentum. Source: BTCUSD on TradingView.com
This is because the price has retested the $ 13,000 level twice in the past 24 hours. At the same time, Bitcoin showed extreme resilience to sell-off attempts near $ 12,550, confirming that bulls want to hold the price floor in anticipation of a medium-term uptrend.
Bitcoin stock correlation
Conversely, there was no such upward momentum on the US stock market. For the past 24 hours, the top Wall Street indices closed a daily session in red, continuing to suggest a bearish continuation ahead of the New York opening bell on Thursday.
Futures linked to the S&P 500, Dow Jones and Nasdaq Composite fell in trading ahead of the session. While the first two fell by 0.12 and 0.06 percent, respectively, the third slipped by 0.15 percent.
The US stock futures fell on economic worries. Source: TradingView.com
The US Stocks Futures slipped on stimulus worries. Source: TradingView.com
The Wall Street Journal reported that investors are waiting for further signals from the US Congress of a long-belated fiscal stimulus. Despite several rounds of negotiations between the Democrats and the Republicans, the deal remains in place.
Earlier, US Federal Reserve chairman Jerome Powell had warned that the delay in the adoption of the stimulus package would continue to slow the US economy as it tries to recover from the fallout from the lockdown caused by the coronavirus.
The US stock market also expects the stimulus to be the next catalyst to trigger a bull run. Even bitcoin, a non-mainstream financial commodity, swelled its market after $ 2 trillion in aid from Congress in April 2020. This explains the positive correlation between the two.
The dollar factor
The most common denominator between Bitcoin and US stocks is the US Dollar Index (DXY). This year, a decline in the greenback has helped move investors away from cash and cash-based instruments to riskier assets. Bitcoin and Wall Street benefited from this – all at the same time.
But the last two days have been different. The DXY fell on Wednesday but did not cause a rally in the US stock market. Bitcoin, on the other hand, rose from a lower $ 12,000 to $ 13,200.
The situation was similar on Wednesday. The DXY recovered due to the stimulus uncertainty. As a result, the S&P 500, Dow Jones and Nasdaq Composite all fell. Bitcoin, however, remained at a higher level, unaffected by the renewed appetite for the dollar.
Stocks are flat ahead of the IPO, but Bitcoin doesn’t seem to care.
It does what it wants.
Correlation can exist for short periods of time, but Bitcoin is still historically unrelated to the stock market.
– The wolf of all streets (@scottmelker) October 21, 2020
One reason for this is PayPal. The global payments giant followed its rival Square on its journey into the cryptocurrency space. On Wednesday, she announced that her new services will include options to buy, sell, store and spend Bitcoin.
That explains somewhat why Bitcoin decided to go its own way [for now].
“This pump is organically powered on site,” said Charles Edwards, founder of Capriole Investments. “There is almost no resistance in the order book. Yes things can change quickly, it’s crypto. But that’s a very healthy move. Something we’ve never seen before at 12K plus. ”