Bear market in stocks: What will it do to Bitcoin?

 


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One month ago, Juan’s cycle model issued its first bear-market signal for the U.S. stock market since Bitcoin began trading.

Yesterday, we broadcast a landmark video conference in which he warned that the next phase of the stock market decline could begin in April. (To watch it now, click here.)

And today, the $64,000 question is: Will a bear market in stocks cause a parallel bear market in cryptocurrencies?

History Gives Us No Guide

Usually, the first place to look for answers is in historical market patterns.

We know, for example, that the ups and downs in Bitcoin are highly correlated to those of altcoins.

In the gold market, we know that the U.S. dollar can be a big factor.

And in the fiat currency world, almost all non-USD currencies typically move in sync.

What about the impact of a stock market bear on Bitcoin?

As I told you a moment ago, from the day Bitcoin began trading until last month, the S&P 500 had been in a long, nine-year bull market. So we don’t have even one bear market in stocks to compare to Bitcoin.

Here are the facts we do have:

Fact #1. No correlation. Whether looking at the daily, weekly or monthly fluctuations, there’s virtually zero statistical correlation between stocks and crypto.

Fact #2. Bitcoin’s bear market began in December 2017. The stock market didn’t reach a peak until more than nine months later. During that period, Bitcoin fell 65.3% while the S&P 500 rose 10.1%. Again, no correlation.

Fact #3. Similarities with gold. If there’s any similarity between Bitcoin and another asset class, it’s not with stocks. It’s with gold.

Like gold, Juan tells us that Bitcoin’s primary use case is becoming that of a store of value. So much so that, in some circles, it has earned the monikers “digital gold” and “gold 2.0.”

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Like gold, Bitcoin and other cryptocurrencies could become a haven for investors who flee from fiat currency devaluations. In fact, in one key aspect, it may be even better than gold: It cannot be confiscated by any government.

And if you look at major tops and bottoms in the Bitcoin market over the years, you’ll see another important resemblance to gold:

  • At major market highs, both Bitcoin and gold make sharp U-turns. We call them “pinpoint tops.” And …
  • At major market lows, both Bitcoin and gold form long bottoming patterns. We call them “rounded bottoms.”

Fact #4. Crypto is a risk-on asset. Among all the factors we’ve looked at, this is the only concern: Many investors judge all things from a single, myopic perspective. Either they’re “risk-on assets” like stocks and speculative real estate. Or they’re “risk-off assets” like bonds and bank CDs.

So they throw crypto into the risk-on category.

This raises a key question: When they see their stock portfolios sinking in a bear market, will some rush to sell anything else they associate with risk, such as cryptocurrencies? Sure.

As stocks fall, could this phenomenon sometimes put downward pressure on crypto prices? Perhaps.

But crypto prices are already very low, and most stock investors who also own crypto are new to the space. Their crypto holdings are almost invariably in the red.

We can’t imagine too many investors waking up one morning and saying: “Oops! Big losses in my stocks! I’ll sell my crypto to raise the cash.” And we doubt this factor will be the primary driver of Bitcoin prices.

Gold has bottomed. Bitcoin should soon do the same.

According to Juan’s cycle model, gold hit bottom in August of last year and is now in a new 3-year cycle, with the upswing still in its early stages.

This year, it could surge through the $1,400-per-ounce zone, making new five-year highs. If that happens, gold then has a good chance to later challenge its all-time highs near the $2,000 level.

Bitcoin is not far behind. The charts tell us it’s currently still in a bear market, but improving fundamentals tell us a new bull market is in the making.

First, even while market prices have fallen, some of the newer, more advanced cryptocurrencies — like EOS, WAX and TRON — have enjoyed a surge in usage.

Second, select altcoins have shown signs of escaping the bear. Ethereum, for example, shot up from $83 to a peak of about $160 from mid-December through early January. And it wasn’t the first larger-cap altcoin to halt its decline. Ripple’s XRP made that critical shift back on Sept. 20. Together, they account for a combined 23% of total cryptocurrency market cap.

Third and most important, Distributed Ledger Technology continues to advance by leaps and bounds. EOS is now orders of magnitude faster and more scalable than Ethereum. New coins — like Holochain and Hedera Hashgraph — are moving beyond blockchain. Although still relatively obscure today, they could someday be in the top 10 by market cap.

Bottom line: Don’t let a bear market in stocks distract or deter you from prudent cryptocurrency investing.

But right now, until Bitcoin signals its own bear market is over, prudence dictates caution.

Best,

Martin

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Comments 2

Mark Gordon January 16, 2019

The fact that you have a risk index as one of the factors in your rating system, in my humble opinion, seems absurd. Everything in the crypto space generally rises and falls together due to coupling with BTC. Crypto is not the equities market, where a blue chip dividend stock is much less risky then a penny stock.

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Bob Schubring January 16, 2019

Tyler Jenks gave an informative interview about Hyperwaves, which happen when irrational exuberance takes control of a market. Prices rise at a parabolic and then hyperbolic rate, peak, and crash in a violent correction that typically returns them to their starting point.

https://m.youtube.com/watch?v=qAH2GuXQBFk&feature=youtu.be

Jenks compares the price action in Bitcoin during 2016-2018 to several similar events.

What I find telling from his analysis was that gold reverted last August to its long-term trend line, predating the 9/11 attacks, and put in a bottom. Bitcoin also traded sideways, reaching the previous trend line it held before going parabolic mid-2017. But it did not bottom there and fell lower.

I think the explanation is rooted in chemistry and physics

The long term trend line in gold, is the increasing cost of digging it out of the ground. When gold prices fell to the long term trend line, they only way to force them lower, was for central banks to sell gold for less than mining new gold.

This limit had no impact on Bitcoin. The Bitcoin trend line was illusory. BTC reached the trend line and sold off.

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