A growing number of analysts warn of a possible bubble on Wall Street. This could have an impact on the Bitcoin market.
This seems to be a good time for international financial markets. After one of its worst declines, when COVID-19 hit the west in mid-March, the stock market has been rapidly recovering in value.
However, this growth may not be as sustainable as people might be thinking. For that reason, some analysts warn of a possible bubble on Wall Street, which could affect the Bitcoin market.
Correlation between Wall Street and Bitcoin
There is no doubt; this is one of the most controversial subjects within the cryptocurrency market at present. For many analysts, there is no question that there is no correlation between Bitcoin and the Wall Street Stock Exchange.
On the contrary, many of them defend the thesis that BTC is a store-of-value asset. In other words, the price of the cryptocurrency has no direct relationship with global financial markets, and therefore, remaining firm even in the face of a drop in them.
However, a growing number of voices are noting the correlation between Bitcoin’s price and Wall Street’s performance, especially during the crisis that the COVID-19 pandemic has caused. According to analysts like Twitter user PlanB, this relationship could have been existing for several years. Besides, it would be the most prominent fact to understand the cryptocurrency market.
If that correlation is true, there is a logical explanation for the drop and subsequent recovery in the price of Bitcoin after the arrival of COVID-19 in the western world. The same phenomena that led to the crash and boom of the financial market could have caused those events. For that reason, the risk of a bubble on Nasdaq would be dangerous for the first cryptocurrency in the market.
The Bubble in the Market
This is precisely the theory that several financial market analysts, such as Ned Davis, are promoting. He has already warned that a bubble is forming on Wall Street, especially pointing to tech company stocks as the riskiest right now.
The analyst explains that tech company valuations are the most extreme that anyone has seen since the tech bubble in 2000, basing on the existing relationship between Nasdaq and small-cap stocks. He finds that the Nasdaq 100 is bubbling; he considers this a sign that there is speculation.
This coincides with what other analysts have been warning for months. They say that the US Federal Reserve’s injection of money has gone directly to Wall Street. There it has caused the price of stocks to rise, even when the real economy is creaking under the effects of the COVID-19 pandemic.
Those who assert that there is a strong correlation between Wall Street and the price of Bitcoin may be right. If the bubble on the stock exchange bursts, the price of BTC will also drop dramatically.
However, Bitcoin has proven on many occasions that it can overcome its worst all-time lows. Therefore, it continues to be the best option for those who want to venture into the cryptocurrency market.
By Alexander Salazar