Crypto - return of the contrarian indicator markets?

in bitcoin •  13 days ago


Read carefully, If I'm right about this then it's big news.

As an asset class, cryptocurrencies have yet to establish their independence. They have yet to prove themselves to the markets of the world. I think that the time for crypto to gain serious recognition and credibility in the eyes of the world may be upon us.

For the purpose of this article I'm going to use Bitcoin as a representative of cryptocurrencies as a whole.

History

In the past BTC has tracked the movements of the major stock market indicators. After studying this phenomenon for some time, I found that it seems to track the movements of the Dow Jones Index (DJI) most closely.

Below is a chart of BTC (shown in yellow) vs DJI in 2017. The positive correlation is obvious.

But in mid-2018 something happened. Crypto started to break away from the movements of the Dow. It started with a strong independent crypto dip in May (I wrote a post about it). Then in August of 2018 the relationship suddenly fell apart completely. Crypto became independent until the sudden capitulation event of November 2018.

At that point the credibility of crypto was dealt a serious blow and it fell back in step with the movements of the major markets.

Until now

Forgetting about crypto for a moment: 2018 was a tumultuous time for the stock markets. Volatility grew wildly and the year ended with a last minute recovery from a fairly threatening crash. Ever since the 2008 crash the markets have grown well, but even the most bullish of traders knows that the house of cards they are building is unsustainable and that the markets are setting themselves up for an inevitable repeat of the 2008 event.

Large dips raise the question "is the crash happening now?", FUD sets in and market volatility becomes greatly amplified. This was the story of 2018 in a nutshell.

And now something is happening again...

The Dow has just bounced off a major resistance level. This may signal the end of its recovery period, with unknown, but probably negative consequences.

The S&P 500 tells the story even more clearly, its resistance level being better established.

The Nasdaq really isn't messing around. It hit resistance and then just plunged.

... while at the same time Bitcoin suddenly turned positive...

Don't jump to conclusions

These are early days. This doesn't mean anything just yet. The markets may recover tomorrow and this will all mean nothing. BUT: I believe that this may be the first sign of crypto once again breaking away from the traditional markets. I say this because:

  • The markets have hit resistance and failed to break it. This is creating uncertainty and it makes sense that fearful traders will be looking for a safe-haven.
  • Crypto is going upwards unexpectedly while the markets dip sharply.
  • Crypto volume has been steadily increasing since May 2018 - indicative of serious investors entering the market, investors who identify it as a unique asset class. See the BTC volume chart below.

From https://coinmarketcap.com/currencies/bitcoin/

If I am right about this, then we are finally seeing concrete evidence of crypto establishing the next foothold needed to continue its climb. I remain positive about the future of crypto and I'm still very happy with my projected timelines for it.

Even though Crypto is rising today, I still see BTC dropping towards the $3600 level in the medium-term future. If something big happens to the stock markets then I may have to revise this projection.

Whatever happens, I think that this may be another very positive sign for crypto, a sign that it is being seen as a serious contender in the international financial markets.

Yours in crypto

Bit Brain

All charts made by Bit Brain with TradingView unless stated otherwise

"The secret to success: find out where people are going and get there first" 

~ Mark Twain

"By this means (fractional reserve banking) government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft."

~ John Maynard Keynes

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Published by Bit Brain
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Considering that larger volumes from the OTC markets are not included in the volume data, I think the transactional volume is even more positive that it seems!

Posted using Partiko iOS

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The rampant wash trading somewhat cancels it out!