Bitcoin (BTC) does not go up and down on its own. Markets are interconnected and there is a reason for every move up and down. For those of you wondering why Bitcoin (BTC) crashed the past few days, you could look at Bitcoin (BTC)’s historical price action and get some clues. The price of Bitcoin (BTC) did capitulate in a similar manner back in 2015, so it was only reasonable to expect it this time in order for the true bottom to be formed. This is a very plausible explanation in itself if you are looking at Bitcoin (BTC) and the recent crash as an independent event. However, I’d like to propose that it was not an independent event at all.
First of all, let us look at the above weekly chart for S&P 500. You cans see that just like Bitcoin (BTC), the S&P 500 also crashed hard the past few days. It also settled atop a historical trend line same as Bitcoin (BTC). Is this a coincidence? I don’t think so. As much as some people would like to believe that Bitcoin (BTC) is supposed to be digital gold and it has no correlation with the stock market, the fact remains that it has, and a very strong one. The reason behind that is Bitcoin (BTC) is not digital gold, at least not yet. It is a highly speculative asset perhaps even riskier than most emerging market investments. Bitcoin (BTC) goes up only if there is money to put into it. This might sound pretty straightforward but it is not.
The only way to put money into Bitcoin (BTC) is if the stock market rally continues and the Fed slows down on its tightening policy. If the stock market tumbles, people are going to sell every risky investment they have to protect their positions in stocks that have established businesses behind them. Let us now look at what has happened with Nasdaq Composite the past few days. The monthly chart above for Nasdaq Composite shows a strong decline to a historical trend line. As you can see, it has now settled atop a ten years long trend line. This is the stock market bubble that everybody is talking about. Apparently, everybody and their dog seem to think that this bubble is going to pop tomorrow which is exactly why it is not going to happen anytime soon.
Let us now look at the daily chart for Bitcoin (BTC). Before we analyze this chart, I’d like to reiterate that the price action of Bitcoin (BTC) is a direct consequence of the price action of the major stock market indices like the S&P 500 Index and the Nasdaq Composite. Any buying or selling, especially selling of Bitcoin (BTC) has directly to do with the price action on major stock market indices. As the BTC/USD chart shows, the price has settled atop a four years long trend line, quite successfully. It has also rebounded strongly today and seems to be on its way to recovery. I’m not in any way denying that the price of Bitcoin (BTC) could not fall below $4,000 but I’m saying that it has the same odds as a stock market crash. If the stock market crashes tomorrow, then yes Bitcoin (BTC) might tumble below $4,000.