Usually, the correlation between the US stock market and Bitcoin is close. However, why is Bitcoin’s recent performance far behind the US stock market? This article will explore various possibilities for Bitcoin’s weakness.
Table of Contents
Bitcoin and US stocks diverge, A-share cooling may help fund inflows
Potential US government sales may put pressure on Bitcoin
Golden September and Silver October? Bitcoin still needs technical drive
The correlation between the US stock market and Bitcoin has always been high. However, in the past two days, Bitcoin and the US stock market have diverged again. In the early hours of October 10th, US stocks closed higher on Wednesday, with the Dow and S&P 500 both hitting record highs. Against the backdrop of record highs in the US stock market, Bitcoin has continued to fall. What is the reason behind this?
The global financial market is like a pool of water. Where there is a profit effect, there will be a gathering of funds. There are clear signs of capital outflow from the cryptocurrency market to A-shares recently. A-share markets have been making a lot of money and getting rich recently. On October 8th, the trading volume of the Shanghai and Shenzhen stock markets exceeded 30 trillion yuan for the first time in history, reaching 3.45 trillion yuan, a significant increase of over 800 billion yuan from September 30th.
Almost all major sectors have risen, with brokerages and semiconductors breaking out. Individual stocks continued to rise, with 5029 stocks rising in the market, 791 stocks hitting the limit, and 291 stocks falling. More unusually, on the morning of that day, hundreds of wide-based ETFs hit the limit, and the ETF market’s trading volume expanded. The latest weekly data released by the global fund flow monitoring agency EFPR as of the week ended October 2nd showed the second largest weekly fund inflow into emerging market stock funds recorded this year, marking the 18th consecutive week of net inflows, and almost all of these inflows flowed into the Chinese market.
In addition to the continued large inflow of capital, China’s policies have also continued to introduce active policies. Most people in the A-share market believe that this will be an unprecedented bull market. In addition to the two structural monetary policy tools created by the central bank, on September 24th, the China Securities Regulatory Commission issued the “Opinions on Deepening the Reform of Mergers and Acquisitions of Listed Companies”, further stimulating the vitality of the mergers and acquisitions market, supporting listed companies to inject high-quality assets, and improving investment value; and the “Guidelines for the Supervision of Listed Companies No. 10 — Market Value Management (Draft for Comment)” solicited public comments, requiring listed companies to promote the improvement of the quality of listed companies to promote the improvement of investment value.
In addition, on September 26th, the Central Financial Office and the China Securities Regulatory Commission jointly issued the “Guiding Opinions on Promoting the Entry of Medium- and Long-term Funds into the Market”, removing the blockage of funds such as social security, insurance, and wealth management, and making efforts to boost the capital market.
The A-share market is currently an investment haven in the global financial market, and there are clear signs of capital inflows. This also means that there are clear signs of capital outflow from the cryptocurrency market. This is reflected in the continuous negative premium of USDT and the outflow of funds from Bitcoin ETFs. However, with the recent surge of A-shares, the market has experienced a pullback, and it is expected that the outflow of funds from the cryptocurrency market will slow down. However, considering the current low valuation of A-shares, it is undeniable that funds may further flee from the cryptocurrency market or reduce investment in cryptocurrency assets, which is undoubtedly detrimental to the rise of Bitcoin.
Since June of this year, a major wave of selling of Bitcoin has come from the German government, the US government, and the compensation brought by Mt.Gox. Recently, the expected US government sale is also a potential factor in the setback of Bitcoin. According to a post by Lookonchain, the US government appears to be able to freely sell the 69,370 bitcoins seized from Silk Road. On October 7th, the US Supreme Court refused to hear the case of Battle Born Investments regarding the ownership of the 69,370 BTC (about $4.33 billion) seized from Silk Road, allowing the government to fully control the seized funds.
The author believes that the Biden administration may not be very friendly to the cryptocurrency market, and it seems that the US government may be able to carry out sales. The last time the US government sold was two months ago, when the government moved 29,800 BTC (about $2.02 billion), of which 10,000 BTC (about $594 million) were transferred to Coinbase Prime. The market is also concerned about the prospects for cryptocurrencies after Kamala Harris’s victory. Bernstein analysts say that if Kamala Harris wins, Bitcoin may once again test the $40,000 range.
In addition to the potential selling pressure from the US government, the HBO documentary “Cryptocurrency: The Mystery of Bitcoin” may also cause some panic in the market, becoming the main reason for Bitcoin’s decline on October 9th. This new HBO film, directed by renowned director Cullen Hoback, attempts to reveal the identity of Satoshi Nakamoto, which has attracted widespread attention in the market. Currently, Satoshi Nakamoto’s Bitcoin is worth $68 billion, which is a huge number. For the market, if it is confirmed that this person is the founder of Bitcoin, it is certainly an exciting thing, but it may not be so good for the market.
The controversy surrounding the HBO documentary is huge. Cullen Hoback believes that Peter Todd is solid evidence for being Satoshi Nakamoto, but many professionals in the cryptocurrency market do not agree. Some professionals pointed out that HBO had gotten Peter Todd’s timeline wrong throughout the documentary, leading to the mistaken belief that he is Satoshi Nakamoto. In fact, in 2008, Peter Todd was not yet 16 years old, and his age is very inconsistent. His life and experience are also very different from what is known about Satoshi Nakamoto. Furthermore, Todd has long served as a consultant for multiple projects, and if he were Satoshi Nakamoto, his Bitcoin wallet would not have been completely inactive for so many years. Peter Todd himself is extremely dissatisfied and has publicly denied that he is Satoshi Nakamoto, expressing his incredulity about Hoback’s theory on social media.
Although Bitcoin has shown weakness recently, the market remains optimistic about its future performance. In addition to the Fed’s interest rate cut, the main support is the market capitalization growth of USDT.
Data from CryptoQuant shows that stablecoin liquidity continued to grow to a record $169 billion at the end of September, an increase of 31% since the beginning of the year. Tether’s USDT still dominates, with its market value increasing by $28 billion to nearly $120 billion, accounting for 71% of the market share; and Circle’s USDC, whose market value increased by $11 billion to $36 billion, has grown by 44% since the beginning of the year, accounting for 21% of the market share. The record number of US dollar stablecoins and the surge in large Bitcoin trades may lay the foundation for a more extensive rise in Bitcoin in the coming weeks, keeping the bullish seasonality of the asset in October intact.
The author believes that the expectation of a bull market in A-shares is very obvious, and the continuous speculation about A-shares in the global financial market will essentially lead to the outflow of funds from the cryptocurrency market or a reduction in investment. In addition, the outcome of the US election will be a very important factor. If Trump is elected, this will undoubtedly be a direct stimulus to Bitcoin, as he actively embraces cryptocurrencies; but if Harris is elected, the outcome of Bitcoin is uncertain, and a further deep pullback is not ruled out, which will have to wait until November. Overall, the author holds a cautious attitude towards Bitcoin’s market performance in October. From a longer-term perspective, the cryptocurrency market still needs to be driven by technology, and purely financial stimulus is unlikely to create sustained prosperity.
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