Coronavirus Outbreak Could Trigger A Major Crash In S&P 500 (SPX) And Bitcoin (BTC) 

Bitcoin (BTC) bulls are the most optimistic they have been in months. However, stock market investors seem to be even more optimistic. The best way to ascertain how optimistic or pessimistic people are in any market is not to look at how they feel about the market at a certain time but how they are allocated. We can see that almost 70% of traders are long on Bitcoin with only 30% short. Investors are even more optimistic on the stock market based on how they are allocated. At the moment, we have seen a slowdown due to uncertainty surrounding the Coronvirus. The S&P 500 (SPX) started to decline the same day but began another day in green when some reports mentioned that the outbreak could be contained. Now that it has become clear that it cannot be contained, the index has started to decline once again. 

There is a strong correlation between declines in the S&P 500 (SPX) and in the cryptocurrency market. We have seen this to be a well-established pattern in the last two years. When the S&P 500 (SPX) started to decline in January, 2018, we saw a similar decline in Bitcoin. The same thing happened again with a sharp decline in the S&P 500 (SPX) in October, 2019. So, if the index starts to decline again this time, it would be very reasonable to think that Bitcoin and the rest of the cryptocurrency market will follow. One thing that is important to note here is that some analysts are trying to downplay the impact of the Coronavirus outbreak referring to the impact of the SARs outbreak in 2003. However, what they don’t realize is that the dot com bubble had burst just before that and the market had already gone through an aggressive correction. 

The daily chart for BTC/USD shows that the price has run into a strong resistance at the previously broken market structure. The price currently trades around $9,385 and risks significant further downside from current levels. One thing that cryptocurrency investors might want to keep in mind is that the next downtrend that will eventually lead to capitulation may not be the same as the one we saw during the previous market cycle. 

If Coronavirus is similar to the pandemics of 1720,1820 or 1920, we are going to see a lot of pain in financial markets in 2020. This would then certainly not be a time for investors to be risking their money in something so speculative and uncertain as cryptocurrencies. This could also be the catalyst that brings about the next market crash because the rate of transmission and infection of this virus is a lot deadlier than the SARs outbreak. This is therefore not the time for major investors in financial markets to be experimenting with something as risky as Bitcoin (BTC) or other cryptocurrencies.