A push to $9,200 fuelled by stock market optimism hides otherwise weak price performance in Bitcoin, with no end to the correlation in sight.
Bitcoin faces a major test at the start of a new week’s trading, as an unlikely global stock market rally contrasts with rising uncertainty over COVID-19.
Bitcoin Tracks Chinese Stocks Surge as Rally Delays Bearish $9,000 Retest
Fresh from an uneventful weekend, the largest cryptocurrency conspicuously tracked an abrupt surge in Chinese stocks as markets opened Monday, July 6, according to TradingView.
After state media urged investors to buy [Chinese language], China’s stocks arena saw major gains, challenging its performance in 2015, with the FTSE China A50 index even hitting all-time highs. The events fuelled bullish upturns in futures elsewhere prior to the opening bell in London and New York.
For Bitcoin, $9,000 support, which was tested twice in recent days, remained intact as bulls led a climb to $9,200.
Bitcoin dances to the tune of macro markets
The timing of the move left little doubt about macro sway over BTC, which industry quant analysts have long shown to be correlated to stock markets, in particular the S&P 500.
Just as reservations remain about the true health of equities, so are analysts continuing to question the strength of Bitcoin’s current price performance.
Away from China, U.S. stocks’ best quarter in 10 years provides a stark contrast to the reality on the ground: huge unemployment, civil unrest, and COVID-19 infection rates which still refuse to slow down.
Added to the complex situation are interventions from the Federal Reserve, which since March has entered multiple markets to control ever more of US GDP.
Should stocks in fact be artificially bullish, Bitcoin is likely set to suffer from the impact of a correction on the back of otherwise weak performance.
“This will further suck in retail capital into [the] equity market (both are 80% or more retail in China) so makes crypto market even more dull,” Dovey Wan, founding partner at crypto asset holding company Primitive Crypto, summarized on Twitter.
Analyst: Bitcoin to $190,000 if the S&P 500 cracks 4,000 points
For many, however, the current rally forms part of a genuine long-term macro recovery.
“The economy is doing a lot better than most economists think,” strategist Jeff Saut told CNBC’s Squawk Box on Monday.
“…I think the markets are going up, I think they’re going up a lot more than people think.”
Saut confirmed predictions that within the next year, the S&P 500—currently at 3,130 points—would top 4,000 points. For quant analyst PlanB, creator of Bitcoin’s stock-to-flow price model and a firm supporter of its correlation to the S&P 500, such levels would spark a revolution in BTC/USD.
By his latest calculations, published on social media, the S&P 500 at 4,000 points would equate to Bitcoin price of $190,000.
The stock-to-flow model will see a test of its own in the event of further major correlation-induced corrections. So far, its predictions have not been invalidated by Bitcoin price action, even during the period of intense volatility observed in March, when BTC/USD hit $3,600.
If Bitcoin continues to repeat the historical patterns on which stock-to-flow hinges, its price should begin to increase by what PlanB describes as an “order of magnitude” as soon as 2021.
Updated at 1:56 p.m. to correct byline.