Usually, the correlation between the US stock market and Bitcoin is close. However, why has Bitcoin’s recent performance been far behind that of the US stock market? This article will explore various possibilities for Bitcoin’s weakness.
Table of Contents:
Bitcoin and US stocks are diverging again, A-share cooling may help capital inflows
The potential sale of the US government may put pressure on Bitcoin
Gold in September and silver in October? Bitcoin still needs technical support
The correlation between the US stock market and Bitcoin has always been high. Why have Bitcoin and the US stock market diverged in the past two days? In the early morning of October 10th, US stocks rose on Wednesday, with the Dow and the S&P 500 hitting historic highs. Against the backdrop of record highs in the US stock market, Bitcoin continued to decline. What is the reason behind this?
The global financial market operates like a pool of water. Where there is a money-making effect, capital will gather. There are signs that funds in the cryptocurrency market are being diverted to A-shares. In the recent period, the A-share market has been making a fortune. On October 8th, the trading volume of the Shanghai and Shenzhen stock markets exceeded 3 trillion yuan for the first time in history, reaching 3.45 trillion yuan, a substantial increase of over 800 billion yuan from September 30th.
Almost all major sectors have risen, with brokerages and semiconductors surging. 5029 stocks in the market rose, 791 stocks hit the limit, and 291 stocks fell. In a rare occurrence, hundreds of broad-based ETFs hit the limit on the morning of that day, and ETF market transactions expanded. The latest weekly data released by the EFPR, a global fund flow monitoring agency, shows that as of the week ending on October 2, the fund tracking emerging market stock funds recorded the second largest weekly fund inflow of the year, marking the 18th consecutive week of net inflows. Almost all of these inflows have flowed into the Chinese market.
In addition to the continued large inflows of funds at the financial level, China has also continued to implement active policies. Most people in the A-share market believe that this will be an unprecedented bull market. In addition to the two structural monetary policy tools created by the central bank, on September 24, the China Securities Regulatory Commission issued the “Opinions on Deepening the Reform of Mergers and Acquisitions in the Listed Company Market” to further stimulate the vitality of M&A markets and support listed companies in injecting high-quality assets to enhance their investment value. The “Guidelines for the Supervision of Listed Companies No. 10 – Market Value Management (Draft for Solicitation of Comments)” were publicly solicited for comments, requiring listed companies to promote the value enhancement of listed companies based on improved quality.
A shares are currently a hotbed for global financial markets. There are clear signs of capital inflows, which also means that there are clear signs of capital outflows from the cryptocurrency market. This is reflected in the continued negative premium of USDT and the outflow of funds from Bitcoin ETFs. However, with the recent frenzy in A shares, the market has seen a pullback. It is expected that A shares will need to go through a period of adjustment, and the outflow of funds from the cryptocurrency market is expected to slow down. Considering that A shares are currently undervalued, it is likely that funds will continue to flow out of the cryptocurrency market or reduce investment in cryptocurrency assets, which is undoubtedly not conducive to Bitcoin’s rise.
Since June of this year, the recent wave of Bitcoin selling pressure has come from the German government, the US government, and the compensation brought by Mt.Gox. Recently, the potential government selling pressure in the United States may also be a factor in Bitcoin’s setback. According to Lookonchain, the US government seems to be able to freely sell 69,370 Bitcoins seized from Silk Road. On October 7th, the US Supreme Court refused to hear the case of Battle Born Investments regarding the ownership of 69,370 BTC (about 4.33 billion US dollars) confiscated from Silk Road, allowing the government to fully control the seized funds.
The author believes that the Biden administration may not be very friendly to the cryptocurrency market, and the US government seems likely to sell. The last time the US government sold Bitcoin was two months ago, when the US government moved 29,800 BTC (about 2.02 billion US dollars), with 10,000 BTC (about 594 million US dollars) being transferred to CoinbasePrime. The market is also concerned about the future of cryptocurrencies after Harris wins the Democratic Party. Bernstein analysts said: If Kamala Harris wins, Bitcoin may once again test the $40,000 range.
In addition to the potential government selling pressure in the US, the HBO documentary “Cryptocurrency: The Mystery of Bitcoin” may have caused a panic in the market, becoming the main reason for Bitcoin’s decline on October 9th. This new film by HBO, directed by renowned director Cullen Hoback, attempts to reveal the identity of Satoshi Nakamoto, which has attracted widespread attention in the market. Currently, Satoshi Nakamoto owns Bitcoin worth $68 billion, a huge sum. While it would be exciting for the market if it were confirmed that this person is the founder of Bitcoin, it may not necessarily be the case for the market.
The controversy surrounding the HBO documentary is enormous. Cullen Hoback believes that Peter Todd is sufficient evidence of Satoshi Nakamoto, but many professionals in the cryptocurrency market disagree. Some professionals point out that HBO has got Peter Todd’s timeline wrong throughout the documentary, mistakenly believing that he is Satoshi Nakamoto. In fact, in 2008, Peter Todd was not yet 16 years old, which is very different from Satoshi Nakamoto. Furthermore, Todd has long served as a consultant for multiple projects, and if he really were Satoshi Nakamoto, his Bitcoin wallet would not have been completely inactive for so many years. Peter Todd himself is extremely dissatisfied and has publicly denied being Satoshi Nakamoto, stating on social media multiple times that Hoback’s theory is very absurd.
Although Bitcoin’s recent performance has been weak, the market still holds an optimistic view of its future performance. In addition to the Fed’s interest rate cuts, the main support is the market capitalization growth of USDT.
CryptoQuant data shows that at the end of September, the liquidity of stablecoins continued to grow to a record $169 billion, an increase of 31% since the beginning of the year. Tether’s USDT still dominates, with its market value increasing by $28 billion to nearly $120 billion, accounting for 71% of the market share; and Circle’s USDC, whose market value has increased by $11 billion to $36 billion, an increase of 44% since the beginning of the year, accounting for 21% of the market share. The record number of US dollar stablecoins and the surge in large Bitcoin transactions could lay the foundation for a broader rise in BTC in the coming weeks, keeping the bullish seasonal outlook for this asset intact in October.
The author believes that the bullish expectations for A shares are very evident at the moment. There is continuous speculation about A shares in the global financial market, which will essentially lead to a flow-out of funds from the cryptocurrency market or a decrease in investment. In addition, the outcome of the US election will be very important. If Trump is re-elected, given his active embrace of cryptocurrencies, this will undoubtedly be a direct stimulus for Bitcoin. However, if Harris is elected, the outcome for Bitcoin is uncertain, and a further deep pullback is not ruled out, which would have to wait until November. Overall, the author remains cautious about Bitcoin’s market performance in October. From a longer-term perspective, the cryptocurrency market still requires technical support, and a sustained prosperity is difficult to achieve solely through financial incentives.
Related Reports:
Is it over? Bitcoin sharply rebounds after plunging to $59,000, CPI, employment data worsen, and US stocks fall again
Bitcoin drops to $60,000! Bernstein: If Kamala Harris wins, BTC may test the $40,000 support level again
Jefferies survey: 45% of investors plan to buy “cryptocurrency ETFs” next year, with 25-35-year-olds favoring Bitcoin