Experts in the financial market and crypto industry expect a significant correction of the stock market in the short term. Given the high correlation between bitcoins (BTC) and stocks observed over the past three months, there is a high probability that bitcoins can do the same.
The US stock market experienced strong volatility after the Dow Jones Industrial Average fell by about 7% on June 11, which was caused by a double-digit drop in airline shares. The merger of the three factors appears to lead to significant instability in the stock market: the uncertainty associated with the COVID-19 pandemic, institutions switching to cash and bond issues, and key geopolitical risks.
Yoni Asia, CEO of eToro, a cryptocurrency brokerage giant, warned that the stock market could crash in the near future: “There will be a break (in the stock market) in the next three weeks, I’m not sure who will sell / reduce the position and destroy markets.
The main reason Asia expects stocks to fall is because retail investors have mostly stimulated the stock market since March. He emphasized that when retail investors stand behind the rally, this could lead to a sharp correction. This trend is similar when Bitcoin reached $ 14,000 in June 2019, falling to $ 7,500 in just three months, noting a decrease of 46%.
Asia said that while central banks are printing more money, “we will see a correction because this increase is apparently due to speculation by individual investors. Historically, these rallies end in correction. ” Mati Greenspan, co-founder of Quantum Economics, told the Cointelegraph:
“I agree with his assessment of [Asia] the increase in stocks paid for retail, and therefore I will finish. I was short-lived in the stock market on Monday. The funny thing is that the relationship between stocks and bitcoins has only recently strengthened, and it seems that this indicates that it is the institutions that control bitcoins. ”
If stocks continue to fall below key levels, Bitcoin’s price may also decline based on its reaction to a sudden drop in the US stock market. After the stock market fell 7% on Thursday, the price of BItcoin fell 9%, which indicates that weak stocks can affect sentiment regarding other risky assets, such as cryptocurrency.
Decreased appetite for high risk assets
Investors have a ton of money, said Winfried Cesar Stiglitz, head of Wells Fargo’s lending strategy at Bloomberg Real Yild. But instead of stocks, she said, investors would prefer low-risk investment bonds. Institutional and solvent investors see great risk in the global stock market to create large positions in the stock market.
Unlike current investors and cryptocurrency market traders, the demand for bitcoins in recent months has been caused by two sources: institutions through Bitcoin Trust in grayscale and Chinese investors through Tetherecoin Tether (USDT). In June 2019, the research company Diar reported that 62% of Tether’s online activity came from Chinese investors.
In the short term, so that the BTC price remains above the high support level of $ 9,100 and is aimed at previous highs of $ 14,000 and $ 20,000, Bitcoin should see steady demand from Chinese institutions and investors. If Bitcoin’s cash flow decreases and traders in the cryptocurrency market increasingly move to protect their assets through Tether, BTC’s prospects may increase after the stock market.
Amid uncertain stocks, billionaires leave assets at risk
Wall Street barons and billionaires, including Mark Copan, Paul Tudor Jones and Warren Buffet, have emphasized that in the short term, they prefer to strengthen hedging positions and cash reserves rather than enter the stock market. On May 14, Kuban said at the close of CNBC: “I think it’s almost impossible to predict where consumers and companies will come from. Because of this, it’s hard to evaluate a business. ”
However, prominent investors do not necessarily expect a significant decline in the US stock market. Based on the data, they are only trying to find any estimate of large companies because of the consequences of the coronavirus pandemic.
The International Monetary Fund raised a similar issue, warning that an epidemic could happen with economic data and make it difficult for central banks and investors to evaluate. The International Monetary Fund said in a blog post: “Accurate and timely financial data is necessary for the media.