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The interconnectedness of the price movements of the S&P500 stock market and Bitcoin reached 71% last week. This is a new correlation record that beat April 2020, when cryptocurrencies and stocks were recovering from the collapse of the markets amid the global spread of Covid-19.
Now there is an almost similar, crisis situation, the S&P500 and Bitcoin have been in an almost continuous fall since November last year, having lost 10% and 50% of capitalization.
As in 2020, the increase in correlation is observed at the time of the rebound of the markets, which managed to “find the bottom” last week. Investors returned to buying stocks and digital currencies, having fully won back the negative statements by the US Federal Reserve about tightening monetary policy.
The increase in the rate and the curtailment of buyback programs (QE) of government and mortgage bonds by an agency that plays the role of the US Central Bank deprive the markets of liquidity and an influx of speculative capital. Now this factor will have to be taken into account by traders investing in Bitcoin.
This year, there will be 7 more Fed meetings, and judging by the statements of the head of the department, Jerome Powell, the rate can be raised at each of them, which will lead to a predictable fall in BTC. The cryptocurrency market will receive predicted recession segments. The negative will last for a fairly short period before the news, but in general, the Fed’s policy may cross out forecasts for Bitcoin to reach $100,000.
In the second half of the year, Jerome Powell plans to launch the QT program. The Fed will begin unloading the balance of bonds redeemed since 2008 in order to support the market. QT can drag on for several years.
It was the long-term QE program that raised the capitalization of the stock market and possibly cryptocurrencies over the past 13 years. The launch of the QT reverse mechanism will lead to a repeat of the crisis of the late 60s, when abnormally high inflation and the energy crisis caused a protracted 12-year fall in the S&P500.
Judging by the growth of the correlation, Bitcoin and the cryptocurrency market will not be able to grow during this period. How likely is the forecast for a protracted fall? This will be indicated by the level of the cost of a barrel of oil and the consumer price index. So far, both parameters are rewriting local maxima, repeating the signs of the crisis of the early 70s and 80s.
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