Author: BTCLFGTEAM

It feels like nothing but the words of Jerome Powell matter in markets right now.

In looking at the data, it’s kind of true. I plotted the correlation of Bitcoin against the S&P 500 since the beginning of 2017, and the results show that the correlation has generally picked up over time. This really does shoot down talk of the “inflation hedge” narrative that proved so popular during the pandemic.  

But should correlations not come down over time? Well, not really. Think back to 2017, and the texture of the crypto landscape. It was still a niche asset; it was only beginning to get covered in the mainstream – and certainly nowhere near the level of digital ink that is spilled over it these days.

Today, we have public companies holding it. I took a visit to El Salvador this summer, where I paid for goods with it. These are remarkable developments compared to just a few years ago. Point being, Bitcoin is now in the mainstream.

And being a mainstream financial asset – and one that is substantially further out on the risk spectrum – it will indeed be influenced by the market.

2022

Indeed, this correlation has hit all-time highs this year, moving in lockstep with the stock market. What was the upward shift caused by? The interest rate environment has transformed entirely.

Following a decade of historically low interest rates, inflation has burst out at the seams as a result of incessant money printing and stimulus spending through the pandemic. In order to rein this in, central banks have been forced to hike, with the Federal Reserve in the US leading the charge.

Nothing sucks liquidity out of a market more than rising interest rates, and this is particularly true for high risk assets, such as tech stocks, which discount cash flows back to the present – discount rates which are now measurably higher.

And so – and this is something that is frequently overlooked – Bitcoin is now in a bear market while the wider market is too. Because for the first time in its existence, Bitcoin is experiencing a macro climate not awash with quantitative easing, basement-level interest rates and bullish sentiment. And it’s creaking at the knees – just like every other financial asset is.

Correlations rise in crises. Sellers are indiscriminate when a flight to quality occurs; liquidity is sought, defensive positions are taken and cash reserves rise. Bitcoin, for the first time in its history, is experiencing that the hard way.

In this context, it is no surprise that the correlation has risen.

Someone would have been mistaken to think that Bitcoin (BTC/USD) could approach the end of the year at just $20,000. However, as the clock ticks, the reality is increasingly getting confirmed. Notwithstanding that, many analysts expected that Bitcoin would click $100,000 by the end of the year. It wasn’t bad maths, though, considering a height of $68 in November last year. So, what went wrong?

Of course, it has been a tough year for all markets – cryptocurrencies and stocks alike. Issues ranging from economic tightening, recession risks, and the Ukrainian war have been cited. Stocks are trading at significantly depressed levels, while crypto has shown a direct correlation. If it makes sense that stock markets will come back, then it is an absolute genuine expectation of crypto recovery too. The question is, when?

Perhaps, it would be premature to think that recovery will happen soon as risks remain. However, popular analyst Will Clemente says markets are staring at significant bargains on Bitcoin at $20K. Clemente relies on multiple on-chain metrics to argue the case. 

According to the analyst, there is a huge institutional demand for Bitcoin at below $20,000 on Coinbase. The analyst says regulatory compliance has been attractive to institutional holdings on Coinbase. He notes clear bids on Bitcoin from the $18,500 price down to the $11,000 level. The same confluence, he says, is being observed in other venues. 

Technical indicators supporting BTC attractiveness?

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Source – TradingView

Bitcoin’s daily chart turns heads for technical readers. The price formed multiple bottoms at $19,000, signalling potential bear exhaustion. An RSI reading of 50.33 suggests that buyers and sellers are square at the moment. That was amid the high inflation numbers last week that forced a flash crash in BTC. The cryptocurrency price, however, is showing a limited upside. 

Is Bitcoin undervalued below $20K?

A large accumulation by institutional investors suggests they see value in BTC at the current price. Coupled with multiple bottoms at $19,000, the price could be undervalued. Potentially, Bitcoin could recover from the current level. Further declines could be minimal and long-term holders should find satisfaction in buying the $20K or $19K dip.

The Chief Executive Officer of deVerge Group believes that long-term investors are crucial to the performance of the crypto market in the long run.

The CEO of deVerge Group, Nigel Green, discussed the importance of long-term investors in the cryptocurrency market in a recent interview.

With its headquarters in Dubai, the United Arabs Emirates, deVerge Group is a leading independent financial advisory, asset management and fintech organisation.

Green said long-term investors play an important role in the cryptocurrency market. He said;

“Markets are now predicting that policymakers at major central banks, including the U.S. Federal Reserve and Bank of England, are likely to remain resolute in pumping up interest rates in their battle to beat down unexpectedly stubborn inflation.

Five powerful officials of the world’s most influential central bank, the Fed, in comments made on Thursday, maintained a hawkish theme that inflation remains far too high and they won’t be put off raising rates. We expect a 75 basis-point hike when they gather 1-2 November.”

With more market volatility expected over the coming months, Green said long-term investors would have the opportunity to purchase cryptocurrencies at low rates. He added that;

“Given Bitcoin and Ether’s current correlation with stock markets, we anticipate further, perhaps heightened, volatility in the crypto market before the end of 2022. However, for serious investors, this will not necessarily be seen as a bad thing.”

Green added that major investors would treat the volatility the same way they treat such incidences in other financial markets. The deVerge CEO further explained that;

“The major investors, including institutional ones, will treat it in the same way as turbulence in any other market. 

Some of the world’s best investors consistently use market volatility as a major buying opportunity in traditional financial markets – and the cryptocurrency market is now no different.

When used effectively and efficiently, volatility can be an extremely powerful investment strategy.”

Green said that despite the current market volatility, Bitcoin had remained the best-performing asset in the world in recent years. He said;

“Bitcoin remains the best-performing asset class in the world and has consistently ranked amongst the best for both traditional and crypto investment sectors over the last few years.

Savvy, long-term crypto investors will be looking to benefit from panic-sellers by buying their digital currencies ‘on the cheap’ to enhance their investment portfolios. Serious investors will not be spooked by further volatility. This isn’t their first rodeo.”

Bitcoin is up by less than 1% in the last 24 hours and is currently trading just above the $19k support level.