- Bitcoin has rallied by more than 150 percent from its mid-March low of $3,858.
- But the cryptocurrency’s supersonic recovery risks fizzling out amid rising concerns about the next global market sell-off.
- A string of bearish macroeconomic catalysts, including quantitative tightening, could send Bitcoin price lower.
Bitcoin price may find itself amid a global market storm even as its underlying fundamentals look stronger than corporate stocks and government bonds.
The benchmark cryptocurrency sits at comfortable year-to-date profits, up 40 percent since January 1. Meanwhile, it’s crash from $10,500 to $3,858 during the first quarter sparked a brash wave of buying sentiment. Its rate is now up by more than 150 percent from mid-March lows.
But the profitability itself makes Bitcoin the first potential casualty in the event of a global market rout. Traders with positions in both the cryptocurrency and equity market tend to cover one’s losses by selling the other. The overall goal is to either cover margin calls or merely raise cash.
Like Bitcoin, the global stock market crashed to its yearly lows in March, only to recoup a significant part of their losses. While many veteran strategists expect the rally to continue higher – supported by trillions of dollars of stimulus policies by central banks and governments, others see a “reckoning” crash in the coming months.
In its latest report, Bloomberg encapsulated a string of alarming catalysts that could end the global stock market’s bullish euphoria. The media mogul noted that the second wave of virus infections, rising tensions between the U.S. and China, and faltering corporate earnings together points to a painful trading session ahead.
Meanwhile, looming risks of a no-deal Brexit, as well as the first signs of quantitative tightening by the Bank of England and the Federal Reserve, adds to growing worries about a global market plunge.
In retrospect, BoE Governor Andrew Bailey said on Monday that they plan to hike their lending rates before reversing their quantitative easing policy. The statement followed the central bank’s addition £100bn of stimulus atop its bond-buying target of £645bn for 2020.
Across the Atlantic, the U.S. Federal Reserve data showed that its balance sheet shrank 1 percent, or $74 billion, it’s most significant weekly drop since 2009.
“It is concerning how few tail risks are priced,” Jordan Rochester, a strategist at London-based Nomura International Plc, told Bloomberg. “The big one of which is policymakers potentially slowing down the stimulus. This past week we’ve actually seen the Fed’s balance sheet shrink.”
A Bitcoin Price Crash
The confluence of all the risks, as mentioned above, may end the global market rally. As stated, a crash in the stock market could leave Bitcoin in a similar downside bias. Meanwhile, the demand for currency havens, such as the U.S. dollar and Japanese Yen, may head higher.
Preston Pysh, a prominent financial analyst, gave a similar outlook for Bitcoin, stating that the quantitative tightening may send the cryptocurrency down in the short-term. He explained:
“The event in March was a really good indicator [of] how powerful the dollar is right now. It will definitely impact all markets (in the short term) if the FED can’t manage the liquidity…which I suspect they will struggle to do as time progresses.”
The statement followed Bitcoin’s repeated failed attempts to close above $10,000. The cryptocurrency remains in a corrective downtrend while holding a technical support area between the levels of $8,600 and $9,300. Hardcore bulls, nevertheless, see it breaking above $20,000 – an all-time high – for its safe-haven features.
Veteran hedge fund tycoon Paul Tudor Jones in May called Bitcoin “the fastest horse” because of its ability to protect investors against inflation caused by central banks’ unlimited money printing tactics. Bitcoin has a maximum supply cap of 21 million tokens.
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