In short: Bitcoin's underperformance compared to the stock market may be a warning sign for investors, according to Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence. He suggests that Bitcoin should be outshining in a bull market, but it has declined compared to the Nasdaq 100. McGlone believes this may indicate broader market issues influenced by aggressive liquidity pulls from central banks. Additionally, the Chief Commercial Officer at Deribit, Luuk Strijers, notes that Bitcoin and Ethereum are currently experiencing historically low volatility. However, the market anticipates increased volatility in the near future, driven by factors such as the ruling on the Blackrock spot ETF and the approaching Bitcoin Halving.
Our quick analysis:
Introduction:
Bitcoin, the flagship cryptocurrency, has long been considered the fastest horse in the race of digital assets. However, recent observations by Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, suggest that Bitcoin's underperformance compared to the stock market may be a foreboding sign for investors. In this blog post, we delve into the reasons behind Bitcoin's struggle to outshine in a bull market and examine the potential impact of low volatility on future price movements.
Bitcoin's Decline Amidst a Bullish Stock Market:
Since its 2021 peak and subsequent bounce in April, Bitcoin has failed to maintain its momentum when compared to the Nasdaq 100 stock index. This underperformance may indicate broader headwinds not only for Bitcoin but also for the cryptocurrency market as a whole. According to McGlone, if Bitcoin truly is the fastest horse in the race, it should logically outperform in an everything bull market, which is not the case currently.
The Influence of Central Banks:
A significant factor contributing to Bitcoin's underperformance could be the aggressive liquidity pull from central banks. McGlone highlights the Federal Reserve's ongoing efforts, despite indicators like the producer price index finished-goods gauge declining at its fastest pace since 1948. Bitcoin's struggle to outperform in the face of such liquidity pulls may be a notable warning sign for the broader market.
Low Volatility and Anticipated Price Movements:
Luuk Strijers, the Chief Commercial Officer at Deribit, recently noted that both the Deribit Volatility Index (DVOL) for Bitcoin and Ethereum are currently trading at historic lows. This low volatility environment, however, is expected to change soon. Strijers suggests that the market anticipates a significant upswing in volatility due to upcoming events such as the ruling on the Blackrock spot ETF and the approaching Bitcoin Halvening.
The Impact of Potential Catalysts:
The ruling on the Blackrock spot ETF is highly anticipated in the cryptocurrency community. If approved, it could introduce a new way for investors to gain exposure to Bitcoin without holding the cryptocurrency directly, potentially driving up prices. Conversely, a rejection could result in a temporary price drop and increased volatility.
The approaching Bitcoin Halvening in 2024 is also expected to contribute to increased volatility. This periodic event reduces the supply of Bitcoin on the market by halving the block reward for miners. Supply reduction coupled with potential market demand could ignite substantial price movements.
Stay Vigilant Amidst Low Volatility:
Despite the current lack of market turbulence, investors and traders should remain vigilant. Signs of increased volatility, such as the steepness of the term structure and enduring call skew, suggest that the calm may not last long. Preparing for potential price movements and heightened volatility could be wise.
Conclusion:
Bitcoin's underperformance in a bullish stock market and the current low levels of volatility raise questions about the future trajectory of cryptocurrencies. While the influence of central banks and upcoming events like the Blackrock spot ETF ruling and the Bitcoin Halvening cannot be overlooked, investors should stay informed and adapt to potential market shifts. As always, the world of cryptocurrencies is full of surprises, and being one step ahead can make all the difference.
Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of any agency or entity mentioned.
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Disclaimer: Our articles are NOT financial advice, and we are not financial advisors. Your investments are your own responsibility. Please do your own research and seek advice from a licensed financial advisor beforehand if needed.
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