During Sunday’s Q&A call with CMR members, a question came up regarding Bitcoin and how this high beta asset will react if the stock market makes a correction, especially compared to other high beta indices like the Nasdaq.
It was a great question since the assumption is Bitcoin should trade lower in relation with the Nasdaq as both are high beta assets and should be correlated. I am not sure that assumption is correct in 2024. On 03/08/2024, we had price action that indicates otherwise but we have to consider it is only one data point. This past Friday, the “Goldilocks” type data from the Non-Farm Payroll report was released in the morning which should have bullish the stock market and other “risk on” assets. Equities did make new highs intra-day but then closed on the lows. In contrast, Bitcoin ended the day on the highs. Yesterday makes for the second data point where the Nasdaq is negative on the day and Bitcoin is making new all-time highs. Time will tell how this will play out.
If the trend is going to continue higher then that is bullish Bitcoin. If we're going to get into that hole fiat currency thing, how Central Banks are going to print money, when we're having an inflation problem already, and they have to raise all this money because they've all this debt, and nobody's going to want to buy the debt with money that's being printed because they're just devaluing the currency, you could argue. that's Bullish Bitcoin also.
Bitcoin at the end of the day is supposed to be the safe haven and alternate currency to the Fiat system. That hasn't always worked that way, but that's what it's supposed to be. As they say the digital Gold, right?
Looking at the COT data, Bitcoin is where I would choose to be long risk assets instead of the stock market. Also the thought of selling it at $70,000 right here, just because that was the old high. It's stupid.
Large Speculators have been covering their short positions the last two weeks when looking at the COT, which is something to note, while Ethereum continues to be extremely crowded where Large Speculators are still max short as it made new highs in 2024 going through that $4,000 level on Monday.
One last thought on liquidity, if asset and wealth managers make the decision to put 1% of their clients’ portfolio into a Bitcoin ETF, there is not enough Bitcoin to go around, there just isn't. You can do the numbers yourself, there is not enough Bitcoin to go around without driving the price higher. I'm not coming up with anything genius here, but everybody's employed and that number is growing as we saw from the last NFP report, and that makes for a lot of people making money they want to put to work.
Thank you for reading.
Jason & the CMR Team
Don’t Trade, Fade
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What would be a sell signal for bitcoin? If there is no correlation between bitcoin and nasdaq how would gauge its performance? Gold is inverse correlation with real yields. Does any such correlation exist for bitcoin?