It’s the day after Christmas, and Bitcoin prices are staying right about where they have been for several days. After popping up above the critical psychological $4000 mark, Bitcoin retraced a little bit, but as of press time, the price seems centered around the $3800 mark.
Although it’s true that the price is staying under $4000, it’s significantly up from the low of near $3200 that sent Bitcoin traders scrambling last week. Why has the Bitcoin cake set well?
One interesting theory was presented by Toju Ometoruwa at Cryptopotato December 21 – in a piece called “Did the Federal Reserve interest rate hike boost the price of bitcoin?” Ometoruwa makes the case that Bitcoin’s gains and losses are becoming increasingly tied to the movements of the market as a whole.
First, Ometoruwa lays out the case for tracking BTC along with something like SP500, providing the following analysis:
“Datatrek, a research consultancy has analyzed three holding periods of 10 days, 30 days, and 90 days for Bitcoin and the S&P 500 since January 2016. They found that there was a 79% and 52% correlation in Bitcoin and daily S&P 500 price movements. On a 90-day basis, that figure has a correlation ratio of 33%.”
The logic goes that the federal interest rate hike depressed the stock market, and that traders taking money out of stocks were enticed to put it into Bitcoin because of the lower price of the cryptocurrency.
“In today’s analysis, we believe there is a positive correlation between the Federal reserves recent decision to raise interest rates by 2.5%, and Bitcoins price jumping back to $4k from $3,200,” writes Ometoruwa. “Interest rates are a key determining factor in an individual or entities ability to borrow money … now, when the Federal Reserve decides to increase interest rates, investors become bearish and sell their stocks because they anticipate that fewer people will have access to cheap loans that they can pour into the stock market … a possible reason (for BTC gains) is that some stock investors may have decided to shift their funds from stocks to crypto. Usually crypto wouldn’t be the ideal second choice (Gold or Bonds are typically next in line after stocks for savvy investors). However, with Bitcoin’s price dropping by almost 50% in the past three weeks, it presented an excellent opportunity for stock investors to transition into an oversold asset at just the right time.”
In other words, traders saw an important fire sale opportunity to get cryptocurrency assets cheaply.
It’s ironic, in a way, because in public remarks, the president has been trying to persuade investors to get into stocks for the same reason – because they are down in price, or oversold.
Largely, though, it seems that the investors aren’t going for that, and we have significant index losses over the week and over the month. At the same time, Bitcoin’s leveling is an important psychological indicator that traders are no longer running for the exits – at least not this morning.
In figuring out where Bitcoin goes from here, we can look at some of those technical triangles and other trend patterns that we’ve been talking about over the last few weeks. Any period of stasis by nature precedes a sudden movement that traders are always trying to figure out ahead of the game.
Of course, as we’ve been saying, long-term buy and holders are still in for the long haul, hoping that new gains in blockchain adoption trigger future rises in cryptocurrencies, rises that you can’t spot with technical indicators or by looking into the events of the day, whether it be Federal Reserve interest rates, the jarring departure of James Mattis, or just the jittery short-term motions of the index.