I have written about Bitcoin ($BTCUSD) a few times this year in a variety of contexts. Tonight, let’s revisit its use as a potential measure of risk.
The market zeitgeist and digital gold posts can be reviewed to see what we have discussed in the past.
Here’s the takeaway from the latter post:
Maybe in the future we will be viewing Bitcoin as a broad indicator of overall risk appetite in the global economy. Dr. Bitcoin? Maybe not. What do you think?
We only have a limited dataset due to the short lifespan of Bitcoin. Nonetheless, recent history has shown $BTCUSD to be an uncanny, yet useful leading indicator for the equity markets.
Here’s a weekly chart with $BTCUSD on the top pane and the S&P 500 Index ($SPX) on the bottom.
In the examples shown above (see red/green arrows), Bitcoin either topped or bottomed before stocks. Is Bitcoin giving us a warning signal here? Or maybe our sample size is too small?
At a minimum, we should view the breakdown in Bitcoin as a change in risk sentiment and the speculative fervor that dominated the markets following the COVID-19 crash last year.
Our prior post outlining the key levels we’re watching for $BTCUSD can be found here. If we’re expecting some whipsaw action in Bitcoin, maybe we should expect the same from equities? Our levels are mapped out for both assets; let’s see how it plays out! (Is that how you use a semicolon? Let me know…)
irrelevant tangent
With the amount of feedback I get from friends reading these posts, I am surprised no one called out my most precise example market timing yet… Praising Cathie Wood on the exact date her flagship fund $ARKK topped on February 16th.
It’s official. If I praise Cathie, sell $ARKK. Embarassing.
Have a great week everyone! Cheers!