Crypto Corrects to The Max - Stocks Correlation Is Concerning
已更新
In my last analysis, I suggested that crypto was entering a correctional/consolidation period, and that the $230 Billion level must be held for the picture to continue looking bullish. So far, we have corrected precisely to that level. This was essentially the maximum pain I was expecting, if we are to remain in bullish "buy the dip" territory. It's certainly not ideal. What particularly concerns me is that the monthly candle is looking quite bearish at the moment. I think it needs to close green (above $252.5 Billion) in order for me to regain a bit of confidence. Additionally, the total market cap has been rejected precisely off the previously held long term uptrend support (teal). That's not a good look. 
A little bit of hope:
Something I'd also like to note is how many times this particular correctional pattern has played out over the last 2 years, in regards to Bitcoin. Zoomed out, you can see the descending triangle into rounded bottom play out twice:
Zoomed in, you can see it yet again, except much smaller this time. Does this mean we create another rounded bottom and push up?
We can also see that both Bitcoin and TOTAL are holding the 50w MA. In my opinion, that needs to continue being held in order to prove that we're beginning a bull market. Otherwise, we can head right back to the 200w MA and continue drifting sideways for accumulation or head to new lows.
What about crypto's relationship with the stock market?
Everyone is talking about this right now. A lot of people say that they aren't correlated, but it really doesn't look that way on the weekly chart, does it?
Sure, they don't precisely follow each other day-to-day, but it's clear to me that they're related at some level. The January 2018 selloff affected both markets, and so did the selloff in November-December later that year.
Zooming in on the daily chart, things become a bit more interesting.
Here, you can tell that crypto and stocks have been inversely correlated at times. For example, stocks went slowly up during the correctional period in 2018, and again during the correctional period in 2019. There have been a few notable differences. For one, crypto actually moved up by a large amount during the stock market drop in May, 2019. What was going on then? Trade war anxiety. This means that it's possible people bought crypto as a hedge against an international dispute. This makes sense from an economic standpoint. In the first half of 2019, they both rose together, perhaps because investor confidence was returning to the market. It appears that they collapsed towards the end of 2018 at around the same time, with crypto perhaps leading the way. In this instance, they may have dropped for different reasons, but the correlation is interesting nonetheless.
Looking at today's chart, clearly both have declined together. The main reason cited for the stock market drop is the coronavirus. It would then make sense that crypto would drop as well, since we have genuine recession fears for the first time in a while, and this causes investors to become risk-averse. In terms of magnitude, stocks have faired worse than crypto based on the the relative sizes of their drops. This is what interests me right now. At this moment, stocks are in the red for the year, while crypto remains up by a large amount - almost 100%, in fact.
What concerns me a bit more about the relationship here is that if you observe the period between October 2018 and November 2018, you can see that the inverse correlation came to a halt when stocks started correcting. Right now, we're seeing a similar relatively "small" drop in crypto as stocks suffer. What this could mean is that we may be headed towards a November 2018-esque crypto breakdown, if the correlation doesn't flip any time soon.
Of course, even if stocks continue to drop (which seems fairly likely at this point, even if they bounce a bit next week), we will need to observe this relationship, to see if crypto can become a hedge in the face of uncertainty. If not, it may be wise to remove some risk from the crypto table, particularly upon a dump from the $220-230B level.
Bitcoin was born out of the previous recession, so we have no data as to how BTC and the broader crypto market will behave if we enter another one. A lot, I think, depends on how the media paints it. If the media encourages people to buy, particularly if the dollar declines, then we may see crypto do well in a fearful environment. I think one would get into crypto if there were uncertainty as to how well central banks can handle a global liquidity/debt crisis. If stimulus cannot support the market, banks may fail, and there won't be enough cash reserves for people to withdraw their money. Meanwhile, debt would continue to accrue, reaching absurd levels. THIS might be a bullish scenario for cryptocurrencies, and it may result in one of the only situations where crypto adoption could speed up, and the "financial revolution" crypto supporters fantasize about.
On the flip side, if stocks can bounce hard here, and if the coronavirus starts to fade away, we can see market behavior easily return to looking bullish across all markets. Now this is where my interest in psychodynamics comes into play. You really have to wonder - one main reason anyone accumulates crypto is because they don't trust institutions. Many crypto holders are waiting for the day when the global financial system proves untrustworthy and inefficient. It's a bit of a paradox. If things continue as "normal" and everything is fine, the status quo remains unchecked....then there is no reason for crypto in the first place. It is this logical conundrum that allows me to continue believing in it. What is the purpose of cryptocurrencies, if not to provide some sort of alternative to the "reality" that might be fading away? Not only that, but this is precisely the kind of broader market behavior that might make holding cryptocurrencies exciting. It's very intriguing how the charts are all coming together at this time. This is why I love analysis.
Of course, this is all speculation and not financial advice. I find this stuff fascinating, and I hope you do too.
-Victor Cobra
A little bit of hope:
Something I'd also like to note is how many times this particular correctional pattern has played out over the last 2 years, in regards to Bitcoin. Zoomed out, you can see the descending triangle into rounded bottom play out twice:
Zoomed in, you can see it yet again, except much smaller this time. Does this mean we create another rounded bottom and push up?
We can also see that both Bitcoin and TOTAL are holding the 50w MA. In my opinion, that needs to continue being held in order to prove that we're beginning a bull market. Otherwise, we can head right back to the 200w MA and continue drifting sideways for accumulation or head to new lows.
What about crypto's relationship with the stock market?
Everyone is talking about this right now. A lot of people say that they aren't correlated, but it really doesn't look that way on the weekly chart, does it?
Sure, they don't precisely follow each other day-to-day, but it's clear to me that they're related at some level. The January 2018 selloff affected both markets, and so did the selloff in November-December later that year.
Zooming in on the daily chart, things become a bit more interesting.
Here, you can tell that crypto and stocks have been inversely correlated at times. For example, stocks went slowly up during the correctional period in 2018, and again during the correctional period in 2019. There have been a few notable differences. For one, crypto actually moved up by a large amount during the stock market drop in May, 2019. What was going on then? Trade war anxiety. This means that it's possible people bought crypto as a hedge against an international dispute. This makes sense from an economic standpoint. In the first half of 2019, they both rose together, perhaps because investor confidence was returning to the market. It appears that they collapsed towards the end of 2018 at around the same time, with crypto perhaps leading the way. In this instance, they may have dropped for different reasons, but the correlation is interesting nonetheless.
Looking at today's chart, clearly both have declined together. The main reason cited for the stock market drop is the coronavirus. It would then make sense that crypto would drop as well, since we have genuine recession fears for the first time in a while, and this causes investors to become risk-averse. In terms of magnitude, stocks have faired worse than crypto based on the the relative sizes of their drops. This is what interests me right now. At this moment, stocks are in the red for the year, while crypto remains up by a large amount - almost 100%, in fact.
What concerns me a bit more about the relationship here is that if you observe the period between October 2018 and November 2018, you can see that the inverse correlation came to a halt when stocks started correcting. Right now, we're seeing a similar relatively "small" drop in crypto as stocks suffer. What this could mean is that we may be headed towards a November 2018-esque crypto breakdown, if the correlation doesn't flip any time soon.
Of course, even if stocks continue to drop (which seems fairly likely at this point, even if they bounce a bit next week), we will need to observe this relationship, to see if crypto can become a hedge in the face of uncertainty. If not, it may be wise to remove some risk from the crypto table, particularly upon a dump from the $220-230B level.
Bitcoin was born out of the previous recession, so we have no data as to how BTC and the broader crypto market will behave if we enter another one. A lot, I think, depends on how the media paints it. If the media encourages people to buy, particularly if the dollar declines, then we may see crypto do well in a fearful environment. I think one would get into crypto if there were uncertainty as to how well central banks can handle a global liquidity/debt crisis. If stimulus cannot support the market, banks may fail, and there won't be enough cash reserves for people to withdraw their money. Meanwhile, debt would continue to accrue, reaching absurd levels. THIS might be a bullish scenario for cryptocurrencies, and it may result in one of the only situations where crypto adoption could speed up, and the "financial revolution" crypto supporters fantasize about.
On the flip side, if stocks can bounce hard here, and if the coronavirus starts to fade away, we can see market behavior easily return to looking bullish across all markets. Now this is where my interest in psychodynamics comes into play. You really have to wonder - one main reason anyone accumulates crypto is because they don't trust institutions. Many crypto holders are waiting for the day when the global financial system proves untrustworthy and inefficient. It's a bit of a paradox. If things continue as "normal" and everything is fine, the status quo remains unchecked....then there is no reason for crypto in the first place. It is this logical conundrum that allows me to continue believing in it. What is the purpose of cryptocurrencies, if not to provide some sort of alternative to the "reality" that might be fading away? Not only that, but this is precisely the kind of broader market behavior that might make holding cryptocurrencies exciting. It's very intriguing how the charts are all coming together at this time. This is why I love analysis.
Of course, this is all speculation and not financial advice. I find this stuff fascinating, and I hope you do too.
-Victor Cobra
注释
Looks like we were unable to get back above $252 Billion by the end of the week. Bulls have their work cut out for them now, particularly with market fears not showing many signs of abating.注释
I think Bitcoin will need to get back well above $9100 for me to feel better about this recent drop.注释
We have, however, held the 50w MA, which is somewhat encouraging. If we can continue to hold and make a bigger bounce from these levels, even with stocks continuing a decline...we may have an interesting scenario on our hands.
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