On-Chain Analyst: Bitcoin Likely to Decouple from Stock Market in Coming Months
Bitcoin has been forming a strong correlation to the stock market once again, with this typically occurring during times of global uncertainty.
At the moment, traditional investors are consumed with fears regarding the lack of a second domestic stimulus package within the U.S., as well as the lack of progress in reeling in the pandemic.
The upcoming presidential elections are also creating some uncertainty. There’s a high likelihood that these fears will go unresolved in the near-term, and this could create further turbulence amongst equities.
That being said, it is important to note that this could have an adverse impact on Bitcoin as well, as the benchmark cryptocurrency has never been able to rally as the traditional markets see bear-favoring chaos.
One on-chain analyst, however, is noting that he expects the correlation between BTC and the traditional markets to break in the coming months.
He specifically notes that a sharp decline in stock prices will eventually stop dragging Bitcoin lower as the crypto sees its sell-side pressure diminish. At this point, it may be able to break this correlation and rally independently.
Bitcoin Stagnates as Stock Market’s Descent Slows
At the time of writing, Bitcoin is trading up marginally at its current price of $10,490. This is around the price at which it has been trading throughout the past couple of days.
Last week, bulls stepped up and attempted to reverse BTC’s recent downtrend, pushing the cryptocurrency up to highs of $11,200. The rejection here was rather harsh and ultimately caused it to decline towards its current price levels.
The stock market has been able to post a slight recovery today, which is why Bitcoin’s recent plunge lower has stalled.
That being said, the lack of any fundamental developments surrounding stimulus, or the pandemic, may continue to weigh heavily on the crypto.
Here’s When BTC Could Break Its Connection to the Stock Market
While speaking about the strong correlation between Bitcoin and equities, one on-chain analyst explained that a serious stock plunge will eventually cause BTC to break its correlation.
Essentially, he explains that stocks have much greater sell-side potential than BTC.
“SPX looking very weak, if that plummets, I’ll go out on a limb as say BTC will decouple in coming months. Post halvening and reduced derivative trading volumes fundamentally reduce BTC’s sell pressure against bullish fundamentals of an anti-inflationary hedge.”
The stock market’s price action in the coming week or two should offer significant insights into Bitcoin’s mid-term outlook.
Featured image from Unsplash. Pricing data from TradingView.
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Cole Petersen, @KhareemSudlow