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Tech Stocks, U.S Elections: These Two Sentiments May Influence Your Bitcoin Investment

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Dear of uncertainty
Source: Getty Images

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. 

READ ALSO: The State Of Cryptocurrency Regulation In African Countries

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. 

Bitcoin-S&P500 Realised Correlation
Source: Skew.com

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.

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Market Watch

Jack Dorsey‘s Square to develop open source Bitcoin mining

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Jack Dorsey Bitcoin

On Friday, October 15, Twitter CEO Jack Dorsey announced that American fintech company, Square, would be looking to get into Bitcoin mining. Jack Dorsey who is also Square’s CEO announced this on Twitter which subsequently sent waves through the bitcoin market, surging its price to almost a record high, rising over $62,000 over the weekend. According to the Twitter boss, Square is looking to building an open source Bitcoin mining system that would be available to individuals and businesses.

Sharing his thoughts further on the initiative, he stated that “Mining needs to be more distributed” and that “the more decentralized [mining] is, the more resilient the Bitcoin network becomes. He also mentioned the apparent inaccessibility of mining stating that “Bitcoin mining should be as easy as plugging a rig into a power source.

Dorsey also believes that bitcoin mining “needs to be more efficient and that “clean and efficient energy use” would be undoubtedly beneficial to the digital currency in the long run.

Dorsey ended the thread by saying that a “technical investigation would be undertaken by a Square team led by Jesse Dorogusker, Square’s hardware lead. If successful, this initiative would be another of Square’s bitcoin focused projects which includes a Bitcoin hardware wallet.

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Learning Guides

Understanding Speculation and Crypto Volatility

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Everyone who dabbles in the crypto industry learns almost immediately that the market is very volatile and oftentimes things can change very quickly. That volatility is the fundamental reason why some investors make absolutely stunning gains in so short a time and others lose a lot of money as well. Trading in crypto is one of the riskiest ventures any person can undertake and as they say, it’s not for the faint of heart. The risks can be mitigated of course and sometimes depends specifically on the coin or crypto asset being traded on, barring general market trends.

Nevertheless, to get to the bottom of the volatility concept, one must understand speculation in the market. To start off, the concept of speculation isn’t limited to cryptocurrencies, on the contrary, speculation has existed for as long as economics and trading has. But it is worth saying that speculation is often a feature of novel sectors, assets, commodities and the like. So, even though cryptocurrencies have been around for more than a decade, they’re still in their infancy as far as markets go. One could say that the market is still trying to find its feet.

One of the fundamental reasons why cryptocurrencies are so volatile is that they are fundamentally backed by nothing of value outside the attention that they get. Unlike many fiat currencies which are either pegged to another currency’s value or whose value is unilaterally determined by a central authority, cryptocurrencies only derive value as a function of how many people are willing to use is to transact, i.e. trust in the asset because other people trust it. As a rule of thumb, the larger the number of people who accept the asset, the more valuable it becomes.

This is one of the hallmarks of speculative trading. In the crypto world or in any market that’s novel and untested, many people are in it to win it which means their strategies in trade has the objective of making as much profits as possible in the short term. Therefore, the market enters a subtly dangerous cycle of rapidly changing prices of assets. Basically, investors typically buy assets when prices are low and wait. As more investors are attracted to the commodity for its low prices, it sets off a cascade where more people buy in, causing the price to steadily rise. 

However, all good things must come to an end and it almost always gets to a breaking point whereupon the price gets high enough for investors to begin to sell. This reverses the earlier cascade and as more and more investors pull out, the prices can fall dramatically causing even more to sell off in fear of losing whatever investments they have left. The prices having fallen resets the game and primes investors to begin buying again.

Volatility has been one of the talking points of many critics of cryptocurrencies often comparing it to a Ponzi scheme. And in certain cases, persons of interest with large pulls and audiences can substantially affect the rate at which prices rise and fall. Other factors include government regulations. Volatility at its core reflects the often chaotic nature of trade and market interactions and human hopes and fears.

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Market Watch

What China’s crypto clampdown means for investors

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Over the weekend, China, the biggest crypto mining country once again, began to clamp down on cryptocurrency. Ten Chinese agencies including the central bank and banking, securities and foreign exchange regulators have vowed to work hand in hand to expose illegal cryptocurrency activity.

China has always placed stricter rules on cryptocurrencies but the new rule has made all crypto-related activities illegal. According to the People’s Bank of China (PBOC), it is illegal to cryptocurrency trading and anyone that does so will be severely punished; this includes those within China that are working for overseas platforms. To fully phase out the cryptocurrency mining sector, the National Development and Reform Council (NDRC) said that it would launch a nationwide crackdown on cryptocurrency.

Over the years, China does not recognize cryptocurrency as a legal tender. In 2013, the Chinese government referred to Bitcoin as a virtual commodity that individuals are allowed to freely participate in. This freedom, however, precludes banks and payment companies from providing services that are Bitcoin related.

In 2017, Initial Coin Offering (ICO) was banned. The ban was also extended to the conversion of legal tenders to cryptocurrencies by trading platforms which led most of the platforms to shut down operations in China. The crackdown led 88 trading platforms and 85 ICO platforms to withdraw from the market as of July 2018.

To China, the crackdown on cryptocurrency is necessary as the country is trying to launch its official digital currency and the need to fulfil its 2060 climate targets. The crackdown was necessary as cryptocurrency was seen as infringing on people’s properties and ‘disrupting the normal economic order.’

The statement by PBOC on Friday was unequivocal as the current crackdown is distinct from the previous ones. In his statement on Friday, PBOC called Bitcoin, Ether and Tether ‘legally irreparable’ and should not be used. The new regulations forbid financial institutions, marketing and IT providers from supporting crypto-related activities. The activities of both crypto holders and miners are now considered illegal. This is what Henri Arslanian, a PwC crypto leader termed as “No ambiguity. No room for discussion. No grey areas” in his tweet.  

What does this mean for crypto holders worldwide?

The major effect of China’s crackdown on cryptocurrency is the increase in price volatility. While volatility is a common phenomenon in the crypto world, a crackdown initiated by the world biggest cryptocurrency mining country will have a huge effect on market price.    

After the PBOC interview, Bitcoin fell by 4% within 24 hours and is currently trading at $43,320. Ethereum fell by 6% and it is currently trading at $3,036. With the Evergrande debt crisis and the huge blow bedevilling the crypto market, a clampdown by China would most likely keep the market price on the red until another good news crops up.

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