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Bitcoin’s Correlation to the Stock Market Suggests Intense Volatility is Closer Than Ever

Bitcoin 2020/10/17 18:06 by Olivia Brooke
Bitcoin's Correlation to the Stock Market Suggests Intense Volatility is Closer Than Ever

Bitcoin’s correlation to the stock market has been suggested by many cryptocurrency analysts to mean that BTC is becoming increasingly represented in the traditional market. For one, this could pull the crowd from the traditional market, and it already has, to a large extent. With many traditional investors and investment companies pouring into the cryptocurrency market, it is clear that Bitcoin’s representation stretches from its own industry, and into the traditional market.

However, this correlation with the stock market is veering off from the narrative that Bitcoin is maturing in other traditional industries, and is now signaling that intense volatility is impending. According to reports from Weiss Crypto Ratings, the high correlation between cryptocurrency, particularly Bitcoin and the stock market will no longer be as beneficial for the dominant cryptocurrency due to major headline risk that could potentially harm the stock market. This headline risk is being fueled by the US election, which is fast approaching, and as the correlation intensifies, it could transfer an abundance of volatility, which Weiss terms as “needless,” to the leading cryptocurrency.

“We’ve noticed a high correlation of #BTC to equity markets. This is bad, because currently – due to US election rapidly approaching – stock market has a lot of headline risk, and correlation transfers all that needless volatility to #Bitcoin.” Weiss.

The cryptocurrency market is not only swayed by the technical charts, but fundamentals factors, in this case the US. elections, are often lingering and at any point, prices could fluctuate when underlying factors affect the market.

Meanwhile, some traders are puzzled as to why big companies like Microstrategy are going all-in on Bitcoin and acquiring the asset in large amounts when they could alter volatility by buying after the elections. While some companies may be taking this route, many others, including Microstrategy seems to be unconcerned about the short term losses that may plague the market.

Like most institutional investors, short term volatility is no reason to bottom down as a bull run is almost always around the corner. As Bitcoin struggles to topple its previous all-time high of nearly $20,000, it is useful for the big dogs to stay long, in order to create momentum for when traders begin to short. Hence, the importance of big co-operations betting big on Bitcoin cannot be overemphasized.

It will be useful to note that as the year comes to a close, many fundamental factors could affect Bitcoin’s prices going forward. As many traditional companies make a shift into the crypto-space, prices could pick up swiftly and vice versa in the case that there’s friction from exchanges in the market. Regardless, the year is still looking promising for Bitcoin.

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