The stock market is one of the most significant factors behind the concern of what stimulates the rise and fall of Bitcoin’s price, as the digital asset is very sensitive to the stock market.
Although Bitcoin is still quite speculative at this point in its history, the crypto pioneer asset has seen varied opinions suggesting correlations to traditional markets such as stocks. As such, it is expected that a relatively positive economic period would bring about a positive reaction from Bitcoin, and vice versa.
Again, as the U.S presidential election looms, analysts have predicted a bearish prospect for the U.S Dollar. Bitcoin, on the other hand, stands to gain from the election, with the growing level of political uncertainty.
How Will The U.S Election Affect Bitcoin Price Action?
The United States holds a dominant position on a global scale, and has the ability to exert influence on a very elevated level. Essentially, whoever governs it has an enormous influence on the fate of the world. Thus, uncertainty about who will emerge the winner of the presidential election can have a great impact on the price of Bitcoin.
In terms of crypto markets, it’s difficult to accurately assert anything about the possible effect of the election. However, based on history, the previous elections in the USA influenced Bitcoin’s price, as the markets reacted very positively in the immediate aftermath of Trump’s victory. Though the traditional markets were all dropping, Bitcoin reacted contrarily. This came as a consequence of the uncertainty on the outcome of the election, and ultimately, the economy.
Doubt, uncertainty, and fear are some of the main challenges faced by crypto investors. Considering the increasing level of political uncertainty, investors are more likely to load up into safe-haven assets, especially those not bound to any particular country. The conclusion is obvious: people are likely to invest in Bitcoin when confronted with unstable markets or other obstacles facing national currencies.
The coming election would see the weakness of the U.S Dollars while further stimulating the bitcoin price action for the rest of 2020. However, the outcome of the election would determine further price action. If Trump wins, we are likely to see further dollar printing.
Bitcoin Price Action Relative To Stock Market Sentiment
To some extent, Bitcoin and the cryptocurrency market as a whole, exist fairly independently from the traditional stock market. However, it is speculated that Bitcoin does have a correlation with the traditional stock market because they are both private assets. Therefore, stock market sentiment, circumstances, and price movements may still have an effect on the price action of Bitcoin.
On March 12, the Dow experienced a severe market loss. TradingView.com price charts recorded a 7% fall from 22,840 to $21,150. Around the same time, BTC suffered a similar damage, falling from $8,000 down to $3,870.
Also, In recent months, there has been a high correlation between the S&P 500, and Bitcoin. At the beginning of the month, the price of Bitcoin fell from the $12k levels to retest $10k, following a considerable loss experienced in the stock market. This mirrored drop indicates that weaknesses in stocks can have an impact on the sentiments that surround other risk-on assets such as cryptocurrencies. Therefore, if stocks continue to experience a drop below key levels, the price of Bitcoin, in accordance, could equally see a downtrend based on previous reactions to the drops in stock markets.
With the possible correlation between Bitcoin and the stock market, it is expected that a relatively positive economic period will bring about a positive reaction from Bitcoin and vice versa. However, while at times, Bitcoin moves in sync with the stock market, during other periods, Bitcoin reacts contrarily. Following the red day experienced on the 12th of March, the Dow suffered another severe carnage on the 16th of March while Bitcoin reacted in the opposite. The crypto asset traded in the opposite direction and experienced a price increase, rising from $4,450 to about $6,648.
The correlation between Bitcoin and the S&P 500 has only risen to a lifetime high of 41% on a yearly timeframe. Although, readings such as this may imply a relatively weak correlation.
Despite that recent data suggests a stronger correlation than ever, this one-year timeframe chart indeed shows that Bitcoin’s correlation with the S&P 500 is rather inconsistent as we continue to see an up and down movement. But it is observed that there’s usually a correlation when the volatility of the stock market is huge.