Bitcoin May Remain Stagnant For Months, Stock Market Correlation Shows
Following the ruthless volatility experienced throughout the first quarter of the year in the stock market and Bitcoin, the recent price action has been boring by comparison.
However, according to past the price action during previous recessions and a tight correlation with the stock market, Bitcoin price could remain stagnant and trade at these levels for many months to come.
Bitcoin Price Action Gets Boring After Record-Breaking Volatility Last Month
At the start of the year, Bitcoin price exploded from lows around $6,800 to above $10,000 in just two months time. The leading cryptocurrency by market cap failed to hold the key level, delivering a fatal blow to bulls who had been buying up the asset in anticipation of the upcoming halving just three weeks from now.
The event had long been expected to be bullish, but a fall to below $4,000 and a retest of Bitcoin’s bear market bottom range has left crypto investors shaken and sentiment in the toilet.
The cryptocurrency fear and greed index has reached the longest stretch of extreme fear in the history of the tool, and with the coronavirus still out of control and an economy on thin ice, another drop has been expected.
However, Bitcoin price recently has been showing a strong correlation to the stock market, which helped take the crypto asset down to the lows set on Black Thursday last month. That same correlation, however, could have Bitcoin price stagnant for many months ahead.
15/ One possible scenario: $SPX could range around here for months.
This could be the level where the law of gravity meets The Man behind the curtain.
Fed could keep things floating here awhile. pic.twitter.com/w6YhkVhlkV
— Cole Garner (@ColeGarnerBTC) April 22, 2020
Tight Correlation With Stock Market Could Leave Cryptocurrencies Stagnant for Months
According to charts shared by Cole Garner, self-proclaimed crypto analyst and market cyclist, during the Great Depression, the S&P 500 suffered a catastrophic collapse. The fall caused the asset to bounce to the 23% retracement level. The same stock market index is now currently at 15% retracement, which could be enough to satisfy a dead cat bounce rally before a deeper dive lower.
Such a move also could take Bitcoin price down to new lows, as the asset has been more correlated now to the stock market than the rest of the asset’s history.
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But that’s not the only scenario. The max pain scenario – the one that would cause investors and traders the most grief – would be the current Bitcoin price action continuing in this range for another few months, before the fall finally happens.
What could be happening for now, is that traders are currently taking positions preparing for a move higher or lower. Because there’s so much uncertainty both sides could be equally matched, causing the price to ping pong in a tight trading range. The range won’t break until both sides give up, and one overtakes the other and a breakout occurs.
But that may be months away, according to the analyst’s take.
Featured image from Pixabay