Ned Davis, who has operated his eponymous research firm on Wall Street since 1980, believes a Nasdaq bubble is forming. Based on the approximate correlation between Bitcoin (BTC) and stocks in recent months, this could negatively affect the cryptomoney market.
Bitcoin futures open interest is at a record high as the BTC price approaches $10,000
Since March 2020, Bitcoin and the S&P 500 have had a strange correlation. There were some periods when BTC stalled during a stock market recovery, especially from May to June. But for the most part, the correlation remained high. On July 9, the correlation between Bitcoin and the S&P 500 reached an all-time high of 0.38.
Analysts expressed concern about the overvaluation of technology stocks since early July. If the technology Nasdaq starts to fade, it could cause a further downward trend in the stock market.
Lisa Abramowicz, a business reporter for Bloomberg, wrote
„Valuations of technology companies are the highest since the 2000 technology bubble, based on Nasdaq’s ratio to small-cap stocks.“
Technology stocks threaten Nasdaq, and Bitcoin is at risk of a small recession
The data shows that technology stocks account for almost 50% of the Nasdaq Composite index. Therefore, when these stocks decline, the Nasdaq Composite index falls sharply.
Davis described the current state of the Nasdaq 100 as a „bubble“, and expressed concern about the performance of FAANG and technology stocks. He noted that stocks like Microsoft fell sharply after making profits, as Internet and software companies are still reeling from the impact of coronavirus closures by governments around the world.
Some Bitcoin traders are turning bearish, why is $9,500 a problem?
„The Nasdaq 100 looks like a bubble to me,“ he said. „If this isn’t a sign of getting on a high dive to speculate, I don’t know what is.“
In the short term, a drop in the stock market could cause a smaller drop in the price of Bitcoin. Although Bitcoin has been uncorrelated during some stock market ups, during downward trends, it saw a higher level of correlation.
PlanB, a well-known Bitcoin investor, said:
„S&P500 and Bitcoin have been correlated and co-integrated for the last 10 years. S&P implies a BTC price of: $25,000… Interesting times ahead!“
While some traders foresee weaknesses in the Bitcoin market structure in the short term, there are strong fundamentals to support a medium-term rally.
Variables for a medium-term upward trend
Despite concerns in the U.S. stock market, some data suggests that investors in crypto currencies generally remain confident.
According to Grayscale, its assets under management for all its crypto products reached $4.3 billion. This indicates that institutional investors are investing steadily in crypto assets, mainly Bitcoin, since early 2020.
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The proportion of long and short contracts in most of the major futures markets has remained distinctly positive for Bitcoin in recent weeks. In the daily time frame, Binance says that the „top traders“ on its futures platform are BTC net long. Over 52% of the traders on the exchange currently have long contracts.
However, a strong resistance level of $9,500 and uncertainty in the US stock market could weaken sentiment around Bitcoin in the short term. But in the long term, solid fundamentals show a more optimistic picture of the world’s largest cryptomone currency.