Bitcoin Price Defies Stock Market Link — Post-Halving World Uncertain
Has the upcoming halving already been factored into Bitcoin’s price, and can another pump be in the cards in the short term?
On Thursday, Bitcoin (BTC) breached the $9,400 mark, thereby boasting a recovery that in many ways put the stock market’s performance during 2020 to shame. From a technical standpoint, Bitcoin’s market surge saw it far outpace the Dow Jones Industrial Average, one of the mainstream market's key barometers.
In this regard, it is worth highlighting the fact that since approaching 2019’s bottom of around $3,400 during the start of the year, Bitcoin has been able to forge a remarkable recovery of more than 140%. This is especially significant when compared to the Dow’s rise of around 36% over the same time period.
To put things into perspective, investor and crypto analyst Alex Saunders posted a tweet on Thursday in which he compared Bitcoin’s monetary performance since the start of the year with gold, United States 10-year Treasurys and the S&P 500. As per his findings, Bitcoin has been the best performing asset of 2020, which is no easy feat, to say the least.
And while this amazing performance may be attributed in part to the upcoming halving event that will see Bitcoin’s native block reward quotient reduce by 50%, from 12.5 BTC to 6.25 BTC, a number of experts seem to agree with the notion that the halving may have already been factored into the price and that the latest surge may just be due to investors all over the globe beginning to realize the overall potential of Bitcoin, especially in the wake of central banks continuing to print more money out of thin air.
To gain a better understanding of this situation, Cointelegraph reached out to Eric Benz, the CEO of the crypto exchange Changelly. In his view, the recent demand and increase in Bitcoin’s price are directly related to the global economic turmoil rather than the upcoming halving event, which is just a small part of a much larger picture. He added:
“Trust has been broken in traditional fiat and events like the halving as well as the global Covid-19 pandemic have highlighted the importance of Bitcoin even more. This is why we are witnessing another wave of adoption.”
A somewhat similar outlook is shared by Kade Almendinger, the host of the crypto podcast Darkside of the HODL Moon, who believes that the Fed’s recent multitrillion-dollar stimulus package and negative oil prices, among other financial uncertainties, have been key drivers in Bitcoin's recent market rally. He further opined:
“It's counter-intuitive, but BTC is currently both a high-risk/high reward asset and a hedge against inflation and financial uncertainty in other markets. And we're going to see investors with different priorities getting into Bitcoin for different reasons.”
FOMO definitely played a role
Even though Bitcoin’s recent rally has been quite impressive, a whole host of industry experts believe that this surge has been the result of the fear of missing out — referred to as “FOMO” — as investors have sought to make quick profits post the Bitcoin halving event. Regarding the matter, Ashish Singhal, the CEO and co-founder of CRUXPay — an open-source blockchain payments platform — told Cointelegraph:
“To a reasonable extent, we can attribute the recent price rally to FOMO — fear of missing out. It has been noted that internet search volumes for the Bitcoin halving have increased by a large number, indicating that many have jumped into it due to the positive price impact from the Bitcoin halving, as predicted by many experts. When you see a lot of new entrants into crypto just before a significant event, quick profit is likely what's on their mind.”
Similarly, Neel Popat, the CEO of the cryptocurrency investment platform Donut, seems to agree with Singhal’s assessment that more investors have recently started to explore the potential of cryptocurrencies as markets all over the world have been brought down to their knees with no respite in sight. He added: “Looking at the patterns from previous halvings may lead investors to believe that there is another price rise around the corner. This supports the narrative of investor FOMO.”
Bitcoin’s correlation with the S&P 500
While delivering his talk on April 27 during the Virtual Blockchain Week conference, Mati Greenspan, the founder of Quantum Economics, explained that Bitcoin was currently showcasing its highest ever correlation with the S&P 500. Making use of data derived from Coin Metrics, Greenspan explained that Bitcoin and the S&P 500 currently have a correlation of roughly 0.6 — which, technically speaking, denotes a significant level of interface between the two commodities. He added that “nothing has emerged that’s said ‘crypto is going to be our savior,’” claiming that Bitcoin is still widely viewed by the masses as being a risky investment proposition.
However, following the recent push that saw Bitcoin reach past the $9,000 mark, Cointelegraph reached out to Greenspan to check whether the correlation is still strong. On the subject, he pointed out:
“The correlation has pulled back a tad from the mid-March peak, but remains quite elevated. The action over the last 12 hours is encouraging, but short term data is not very helpful for understanding these types of correlations. Will be interesting to track over the next few weeks.”
Lastly, expanding his views on how this latest surge was able to happen within such a short time window, he suggested that while the halving did have a “small role to play” in the matter, the fact that the Fed and other central banks have been pumping “unprecedented amounts of cash into the economy over the last two months” has greatly helped buoy Bitcoin.
Can Bitcoin sustain its ongoing momentum?
A question that has been on many people’s minds since the recent run took place is whether Bitcoin really has the momentum to keep going. To gain a better understanding of the situation, Cointelegraph reached out to Bryan Hertz, the executive chairman of Filmio, a blockchain-based multimedia content platform. In his view, over the short term it would not be surprising to see the crypto sector continue to ride its current wave of financial success. However, he does believe that once the halving concludes, things will become much more uncertain:
“After the halving event takes place, it will be a bit unpredictable, especially when you consider the effects that Coronavirus has had on the economy, a black swan event that no market was prepared for or safe from.”
Additionally, Jason Wu, the CEO of DeFiner — a borrowing and lending platform based on decentralized finance — believes that the upcoming halving will be a game changer because it will result in the Bitcoin network being upgraded, with old mining machines being made obsolete and replaced by new rigs. As a result of this, Wu believes that less energy will be consumed in the short to medium term, thereby reducing Bitcoin’s existing selling pressure. With that being said, he did concede:
“This will happen steadily. We are going to have another difficulty increase before the halving, then at this level, we are going to have a downturn for BTC. After this, the price of BTC will begin to climb. It will probably take about one year to reach a new equivalent price for BTC and the new equivalent price will be at least four times higher than current level, which is around $20k to $40k range.”
However, such a positive outlook is not shared by Singhal, who believes that most industry personnel aren't really celebrating this recent surge because it is quite simply a consequence of widespread market FOMO. In his view, crypto markets — along with almost every other asset class — will be in a volatile state in the near term.
While many people expected Bitcoin to suffer during the ongoing COVID-19 pandemic, it has been surprising to see the premier cryptocurrency fare extremely well, not only as a standalone asset but also in relation to many traditional commodities. For example, while various stock options have been plummeting and state budgets have been taking hits, the crypto market as a whole has been able to ward off most of the negative pressure, giving investors all over the world some hope. On the subject, Derek Muhney, the director of marketing and strategy at Coinsource — a Bitcoin ATM services provider — opined:
“I am ecstatic to see how resilient the crypto markets have been, specifically Bitcoin. I also think the massive price fluctuations have been very healthy and are setting up a solid foundation. [...] With the rapid price drop in mid-March, we saw weak holders getting liquidated or selling out of their positions, while new strong holders came in and bought long positions. This gives us massive support and makes it highly unlikely that we will test the lows again should there be another drop in price.”