I see a lot of interest on my Bitcoin vs U.S. indices fractals and that motivated to make more seemingly 'odd' comparisons that end up to interesting findings.
One such interesting finding is the comparison of Bitcoin (orange trend-line) to the Shanghai Stock Exchange (black trend-line). Everyone in the crypto world knows how strongly the Chinese government has been battling Bitcoin mining and transactions. Last year alone (2021) we had two such events with the May one being the most severe causing a price correction of more than -50%.
Despite the bans, this chart shows the remarkable correlation of BTC with the Chinese stock market! To get a better understanding of how closely correlated they have been since late 2017, I've plotted also the S&P500 index (light grey), on very low opacity though so that it doesn't spoil the main comparison of this study. Especially their correlation throughout 2021 is astounding as both BTC and Shanghai have been trading within a wide range, while the S&P was making High after High.
So the question is obvious. Why despite all of China's hostility and legal actions against BTCUSD, it is so correlated to their stock exchange? I am very curious to read your thoughts. Let's make a heated discussion in the comments section down below!
I only loosely follow crypto from a distance... but I can tell you that most correlations shift just when you decide to buy into one. Crypto is all still very new in the grand scheme of things, so truthfully we have no idea how it'll respond in various market conditions. If SPX tanks, does crypto go up as money flows intramarket? Does crypto go down at the same time if SPX hits a steep correction? Does crypto become the new gold and an inflation hedge? Does Elon Musk open his mouth and sabotage the entire industry? Most true investors I know still won't touch it because they view it as pure speculation. If the markets go belly up it's the speculative stocks that do the worst, and the dividend-producing unsexy blue-chip Dogs of the Dow that do better. They produce something tangible that people need regardless of a recession or booming market. They are able to withstand rate hikes by the Fed because they've stood the test of time. I am ALL for crypto from a technical standpoint and I applaud the ingenuity behind it. Yet there are far too many unknowns for people like 401k managers to buy into it.
I think as the money supply starts to finally dry up through monetary tightening practices happening worldwide you'll see a whole lot of speculative investments called back. When money is easy people are willing to swing for the fences. When inflation is the primary concern of the Fed and it's inevitable we're facing 3-4 rate hikes in the near future....... that's when people are happy with bunt singles.
To recap, yes, I think there are probably many correlations between bitcoin and other indices worldwide. Should you act on them, though? No. The correlations will shift and can even inverse entirely, like the historical relationship between bonds and stocks.
I love fishing... even ice fishing. It's easy sometimes to get all caught up in catching the next big monster.... meanwhile you aren't paying any attention to the fact that the very ice you're standing on is getting perilously thin. Markets can be savage places and chew people up on the way down as they continue to buy every dip. In bad market conditions, SURVIVAL is the key. Screw getting rich. Just make damn sure you survive to see the dawn of the next bull supercycle. Don't fall in and freeze to death.
DrStein
⋅
@digital_precisions, The epilogue of your comment is a trading advise treasure that all new comers should take into consideration. Thanks.
digital_precision
⋅
@DrStein, I didn't even mention the fact that as markets fall, margined accounts will tighten....and tighten...and tighten. There is undoubtedly mass amounts of leverage in the current market conditions. This means that it's prone to a "reverse" short squeeze where margin calls by brokers force investors/traders to liquidate. This, like a short squeeze in reverse, forces yet more selling into the market. What we saw for the second half of today in the main indices like QQQ, SPX, IWM and DIA is the result of such conditions. The selling was so vicious it carried into aftermarket hours where QQQ kept falling over another point. These are the conditions I was eluding to earlier where SURVIVAL is all that matters. If you're over leveraged days like today can destroy your account. If you had Peloton today? BOOM - 25% gone in 15 minutes! 15 minutes! Peloton is 86% down and may well be on it's way to zero. This is the same company that was the market darling during the Covid lockdown. Things can change in a hurry, especially on the downside of a budding bear market where it seems there's one exhaustion gap after another.
I don't have a problem with crypto at all, and I highly respect the technically savvy traders that navigate it's waters. All I am doing on my little soap box is preaching that it certainly seems like we're on the precipice of a (perhaps) severe correction. This will leave no adjacent market unscathed....including crypto. There will likely be nowhere to hide. NOWHERE. Not even cash, as the current inflation conditions are eroding the value of cash by the day. Crypto was in it's infant stages when the last market crashes occurred, so it's reasonable that many of the people trading crypto have never experienced the max pain it can induce. Everyone thinks it's easy to buy at the bottom.....it looks so easy in hindsight. But in real time? After you realize your Peloton stock just lost 25% of it's value today? Most people capitulate. It's human nature. This, on a large scale, is what causes the crash. It's like a modern day version of the 1929 market crash where people were lined up around the block trying to get their money out of the bank before there was no money left.
Be careful. Don't worry so much about correlations right now and start worrying about how to preserve your capital. Today's reversal should be a real visceral reminder that you should be in full-on defensive mode right now. Don't even be in the mindset of making money right now, just try not to lose it. If you get hung up on making money you'll keep chasing bull spikes, only to find out that you'll get whipsawed out more often than not.
Just my 2 cents. Sorry for hijacking the post, it seems. Sometimes I feel obligated to share the scars that market crashes can leave. Reddit, Wallstreetbets, Twitter feeds.... be careful with these. Be careful of what the public says. For it seems right now the institutional pros are in distribution.
DrStein
⋅
@digital_precisions, another excellent comment, accurate and valuable. You are an asset to this community sir. Good luck out there.
digital_precision
⋅
@digital_precisions, I forgot to check something that in hindsight was completely obvious. How did bitcoin respond during the initial march 2020 Covid sell-off? The answer is it responded exactly the same as QQQ. With that being said, I think those of you interested in Crypto should definitely keep tabs on the slaughter that is happening over in the "real" markets, QQQ in particular. I have a couple prior posts about the specifics if you want to check them. As stated on my other posts here, a correction/crash will bleed into every market leaving nothing unscathed. Sure, there will be some random pockets of stuff going up but chasing these will blow up your account.
Sarang_SJ
⋅
Man I always like your Work...
icean
⋅
Maybe they mine 70% of all btc. Bitcoin and all crypto will soon be legal over there
I think as the money supply starts to finally dry up through monetary tightening practices happening worldwide you'll see a whole lot of speculative investments called back. When money is easy people are willing to swing for the fences. When inflation is the primary concern of the Fed and it's inevitable we're facing 3-4 rate hikes in the near future....... that's when people are happy with bunt singles.
To recap, yes, I think there are probably many correlations between bitcoin and other indices worldwide. Should you act on them, though? No. The correlations will shift and can even inverse entirely, like the historical relationship between bonds and stocks.
I love fishing... even ice fishing. It's easy sometimes to get all caught up in catching the next big monster.... meanwhile you aren't paying any attention to the fact that the very ice you're standing on is getting perilously thin. Markets can be savage places and chew people up on the way down as they continue to buy every dip. In bad market conditions, SURVIVAL is the key. Screw getting rich. Just make damn sure you survive to see the dawn of the next bull supercycle. Don't fall in and freeze to death.