Bitcoin recouples as reality hits the stock market

Despite suggestions that bitcoin had decoupled from equities, the cryptocurrency followed the stock market down this week on dire economic projections.

Bitcoin fell 8% on Thursday after Federal Reserve Chairman Jerome Powell combated Trump’s optimism by predicting “a long road” to economic recovery, with joblessness persisting for at least three years. Meanwhile, the S&P 500 fell around 6% in the worst day for Wall Street since March.

Nevertheless, while bitcoin might be following stocks in the short-term, zooming out shows a very different picture. Since January 1st, the S&P 500 has fallen 7% while bitcoin is sitting on 26% gains.

This Week’s Highlights

  • 36% of Institutions own Cryptocurrency
  • Market Sentiment Sours 

36% of Institutions own Cryptocurrency

More institutions than ever are recognizing the role of digital assets in a diversified investment portfolio.

Fidelity interviewed over 800 institutions between November 2019 and early March 2020, finding that over a third had invested in digital assets, and that the overwhelming majority saw “something appealing” in cryptocurrency.

Most of these investors, which include hedge funds, family offices, and financial advisors, are based in Europe where Fidelity suggests long-term negative interest rates and progressive regulation have helped spur the cryptocurrency revolution.

Market Sentiment Sours 

Bitcoin’s repeated failure to stay above $10k appears to be eroding positive market sentiment.

Social media data collected by both Santiment and points towards a darkening mood, with post-halving optimism in May giving way to increased pessimism in June.

While some might see this as a bad sign, Santiment claims that extremely bullish sentiment often leads to corrections, and that widespread pessimism is actually positive with most bitcoin rallies in the last year beginning within a “predominantly bearish atmosphere.”

The Week Ahead

Global markets are beginning the week on a bearish note as reports from China reveal a resurgence of Covid-19 cases in Beijing.

Widespread risk-off attitude could lead to more downside pressure for major cryptocurrencies, with the increased participation of institutions making Bitcoin and Ethereum more responsive to global turmoil. This sentiment could shift on Tuesday or Wednesday when Federal Reserve Chairman Jerome Powell testifies before Congress — potentially giving more details on plans for quantitative easing.

Regardless of the direction, Bitcoin’s next move after six weeks tightly coiled between $8,800 and $10,000 has the potential to be pivotal, and could signal the direction of price action for weeks to come.