The hypothesis – Bitcoin is neither a countercyclical asset nor digital gold. While Wall Street suffered its sharpest daily decline yesterday, BTC has already been in retreat for more than two weeks, losing more than 20% from its peak of nearly $42,000 and oscillating at $31,000. Some experts believe the crypto bull run, like the current stock rally, is fueled by a promising economic outlook and the U.S. Fed’s easy money policy. Yesterday, the U.S. Fed said that the economic outlook is not so good anymore, but an easy money policy will be upheld. Both would be necessary to let BTC go further north or prevent it from collapsing.
It has turned out (once again) that BTC is not a countercyclical asset. Contrary to public opinion, the rise in BTC has not been due to inflation fears but easy money. Investors have put excess or easy money into cryptocurrencies. The performance of BTC and stocks seems to be linked. They are visibly based on the same input factors such as interest rate levels and availability of liquidity.
A recommendable article about the cyclical nature of BTC has been published by the author Concoda on Medium. He suggests that BTC has always reacted to the same facts in the same direction regarding news on economic outlook, consumer confidence, unemployment, and interest rate policy as stocks in the past years. Concoda calls the Easy Money based economy a Fake Economy, and it would obey the same laws as BTC.
Wall Street suffered its sharpest daily decline in months on Wednesday. The U.S. Fed issued a glum assessment of the economy. Its chairman Jay Powell delivered a message that spooked markets. He said the U.S. recovery from the deep pandemic downturn had slowed due to the virus’s resurgence and a return to normal was still far away for the world’s largest economy. But her also reinforced the Fed’s dogged determination to keep pumping huge amounts of monetary stimulus into the economy
The S&P 500 and the Nasdaq Composite indexes fell 2.6 percent. The Dow Jones industrial average fell 2 percent.