Last week closed with a brutal drop in the stock market and a $2,000 plunge in Bitcoin. While there’s a chance that what’s going on across the crypto market was profit-taking, turning stock market sentiment could end up dragging down Bitcoin, Ethereum, and other top crypto assets much like it did during the Black Thursday market collapse.
Will such destruction return to stocks and in turn, crypto? Here’s the case for why that is possible.
Crypto Mania and Stock Market Bubble Brace For Further Collapse After Initial Crash
Following last week’s pullback across markets, investors are wondering if the stock market mania is over and if the mini crypto bubble built on DeFi hype has popped.
With investors in these markets well in profit buying in at any point earlier in 2020, profit-taking could be the cause, and the rally could continue. However, a telling sign – sentiment sharply turning down – could be a forewarning of another dangerous, Black Thursday-style drop.
S&P500 Daily Sentiment | Source: MacroCharts
Thus far, the price action in both Bitcoin and the S&P 500 has been similar to that mid-March day.
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Bitcoin led stocks in the recent dump, and now both assets have fallen to support where former highs were set in early 2020. Will the cryptocurrency and the stock market hold at these key levels, or is sentiment turning down a sign that prices will soon follow?
Why Bitcoin Must Survive The Negative Sentiment Surrounding Tech Stock Overvaluations
Stocks tumbling further could take Bitcoin down with it due to the ongoing correlation between the traditional asset class and the cryptocurrency that appeared in early 2020. Bitcoin had briefly shaken the correlation to be more on par with gold’s path, but the similarities have since returned.
BTCUSD Versus S&P500 Correlation | Source: TradingView
The main difference, however, between stocks and crypto, is the fact that there is a full-blown mania ongoing throughout tech stocks, that may have only just started to crash back to reality. Top tech stocks lost trillions in three days, taking the rest of the market down with them.
RELATED READING | WHY HAS BITCOIN BECOME A LEADING INDICATOR FOR THE S&P 500?
Bitcoin, however, is at a crossroads. The cryptocurrency’s halving is in the past, and technicals are pointing to a new uptrend taking hold. The crypto market collapsing again under the weight of the stock market downturn could take the emerging asset class down deeper into a bear market.
But if Bitcoin rises while stocks fall, it could see a boost from buyers seeking to move capital to follow profits.
With Bitcoin’s market cap so small in comparison to the weight of top tech stocks alone, if stock money flows into Bitcoin, predictions made from the stock-to-flow model will be reached in no time flat.
Featured Image From Deposit Photos | Charts From TradingView and MacroCharts
