Is Bitcoin Pushing Higher Really Means Decoupling from the Stock Market?

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The S&P 500 fell 4.3% on Friday, plunging through the 2018 level and according to Randy Frederick, a vice president of trading and derivatives at Charles Schwab, that year, it was a severe correction that “almost threw us into a bear market.”

The Dow Jones Industrial Average also slid 4.54% on the last trading session along with Nasdaq that sank 3.79%.

“Stock market investors who still have money in the market are shutting down, selling it all, and taking their money out at the end of an incredible week that defies description,” said Chris Rupkey, chief financial economist for MUFG Union Bank. “And we were there when Lehman failed.”

For the past few weeks just like the stock market, bitcoin has been falling, going as low as $3,850, down over 60% from its February high.

But according to Qiao Wang of Messri Research, “It’s not so much that crypto and stocks are correlated. It’s that in times of deflation + liquidity crisis, the entire world, including stocks, bonds, real estate, commodities, currencies, and crypto, converges to one trade. And that’s the Dollar trade.”

While the Dow ended the week by sinking 17%, this week, bitcoin is in the green by 13.26% as the prices went above $7,130.

Crossing an important level of resistance

Bitcoin price recovering while the stock market continues their descent could be a sign that the digital asset is decoupling from the risky assets.

“Given the fact that the price has crossed the $6,000 mark – an important level of resistance – the upward momentum is likely to pick up the pace, and if the price crosses the 200-day moving average on a daily time frame, it would be a daily time frame, it would be a huge buy signal,” said the chief market analyst of AvaTrade, Naeem Aslam.

The majority of these upward price swings in BTC price also came while the US and Euro stock markets were open, noted Coin Metrics’ Nate Maddrey.

“I think there’s a real chance that BTC decouples and potentially leads on the way up after this crisis has passed. But I think it will likely stay correlated on the way down, or at least as long as the global liquidity crunch lasts,” said Maddrey.

But have we really decoupled?

The digital asset recorded a significant percentage of gains yesterday but it briefly fell to $5,865 today. At the time of writing, BTC/USD has been trading at $6,200 with 24 hours gains of 0.07%. Bitcoin is still at a shaky ground and needs to hold it firm before it can go really higher.

And this is why economist and trader Alex Kruger isn’t sure of the decoupling yet. According to him, to have confidence in this, Bitcoin needs to hold up the next time equities make new lows.

Interestingly, Bitcoin HODLers are busy with buying the dip. The “Hodler Net Position Change” metric — the monthly position change of long-term investors — has been positive during the recent price dump. Currently, it is above zero indicating long term holders have accumulated discounted Bitcoin and increasing their positions.

In February, when the price of Bitcoin reached its highest point in 2020, the metric was above zero meaning holders were selling and taking profits. However, over the past week, they have started accumulating bitcoin yet again.

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