2020 has been a roller coaster for the global economy. Even the so-called haven assets have not been spared by the widespread volatility. The current health crisis is threatening to push many major economies into great depressions. Since March, economic and total lockdowns have become the order of the day and they might be re-imposed with the second wave threatening to hit hard.
Notably, the traditional markets have already turned to the panic button amid the ever-growing economic uncertainty. The pandemic is to blame coupled with the upcoming presidential elections in the United States. Investors seem to be getting ready for the worst and they are now preferring to sell everything for cash. The sell-offs have distorted common correlations and market reactions to the risk-on and risk-off environments.
Despite trying to recover from the deeply oversold levels; the global stock markets are en route to record their first bearish monthly close since March. On the other hand, gold is trading below $1,900 for the first time since the start of August.
Investors are currently looking for some positive economic news and less dovish commentaries from the Federal Reserve officials to determine whether the stocks touched the floor in September and could be ready for a sustainable recovery in the coming months.
Federal Reserve Chairman Jerome Powell together with other policymakers are meeting this week; but they are yet to provide the markets with the much-required breathing space. But, analysts say that the current turbulence will remain severely violent until the presidential elections in the United States are over.
Bitcoin And Gold Correlations
Many times in the past, bitcoin has often been regarded as a haven asset and a hedge against inflation which makes it positively correlated with gold. Nevertheless, the statement works when investors want to protect their wealth from devaluation and many other economic risks.
In the meantime, the increasing geopolitical tensions and growing global uncertainties move BTC to the camp of risk assets and make it quite correlated to stocks. Now, investors have many reasons to panic:
Europe appears to be on the verge of another lockdown since there are 40,000 to 50,000 new COVID-19 cases being registered daily. Some of the countries have imposed new restrictions even as Britain considers the full-fledged quarantine once more.
The United States is in heavy turmoil ahead of the election. The death of the Supreme Court Justice Ruth Bader Ginsburg increased the presidential election fight between President Trump and nominee Joe Biden. The Senate is controlled by the Republicans appears to be eager to push through another Justice before the November polls.
The tension between the United States and China is raging on even as the Chinese state media; denounced the TikTok deal as ‘an American trap’ and a ‘dirty and underhanded trick.’
The Volatility Index (VIX) is used to measure implied volatility in the S&P 500 and it went wild rising above $30 for the second time in September. The index mostly spikes during the shocking events like terrorist attacks and wars. It trades below $20 when everything is alright and calm. It surged above $30 as the markets continued to plunge. The $30 level acts as the upper limit for different world-shocking events like wars.
Considering the facts above, Bitcoin may also become vulnerable for additional sell-off; as long as the global markets are plagued by high volatility and uncertainty levels. The flagship cryptocurrency will go down amid the flight to fiat across the world; and begin to recover after things calm down.
Bitcoin tends to be volatile before the US elections and calms down afterward as Charles Edwards from Capriole Fund mentioned in the recent tweet. The time of panic normally distorts the correlation patterns which means that the parallels between gold and bitcoin, stocks, or any other assets are just pointless.
The 3 months prior to US elections has been "rocky" for Bitcoin in the past.
But the halving + post election "clarity" has been very solid.
Note: sample size ~2.5 pic.twitter.com/uzlyuVR1s6
— Charles Edwards (@caprioleio) September 22, 2020
The market is known to sell everything to get cash as the most liquid asset and the key medium of exchange. The advantages and benefits of digital money over fiat are quite obvious. However, cash remains indomitable in the short term.
Turning to the technical point of view, BTC/USD has to regain some ground above $11,000 to secure an upside momentum and then retest the next psychological resistance of $12,000. In the meantime, a failure to remain above $10,400 may attract more sellers to the market; which will result in a deeper correction with the first focus on $10,000 and then $9,800.