It can be said that we are in a historic week, where the economy has hit new highs after almost 3 years, however, this can be positive for the crypto ecosystem, although it may not seem so at the moment, a bullish momentum that I have explained in this article written in InLeo.
For some people the Bitcoin price should even be in an even more pronounced uptrend on the chart to the SP500, especially, because of the approval of ETFs in spot, however, the price pulled back and has remained in a consolidation range in recent weeks, while the indices touch new highs, that perhaps makes some enthusiasts despair, however, time will prove us right.
The first thing to mention is that both the stock market and equities are different assets to cryptocurrencies, in fact, Bitcoin is built not to be part of the traditional assets that have been managed for so long in the global financial system and to be an option to a system that has more and more holes and less confidence. It should be remembered that Bitcoin was developed shortly after the great banking crisis of 2008, a crisis fuelled by greed and a system in which the banks were the villains, but at the same time they were the ones who were bailed out by the fact that they are "too big to fail" and the economy was collapsing, so we could say that we paid the villains for doing their crazy things.
Although Bitcoin is developed as a distinct asset, it is currently very difficult to separate it from the global economy and system, although Satoshi Nakamoto's idea is that this correlation between traditional assets will be lost over time.
Although Bitcoin and the crypto ecosystem is built as a technological and above all financial alternative, there is a correlation with the traditional economy that we cannot ignore when reviewing price action on a chart. Normally, the downward or upward movement in the major US indices ends up having an impact on the price of Bitcoin and with Bitcoin being the main currency it makes the entire crypto ecosystem go along with it in the movement, either up or down.
One of the explanations in the correlation between Bitcoin and the major US indices is based on the liquidity that moves between these different markets.
As the economy is increasingly mobile, many investors and ordinary people will seek to place their money in assets other than traditional ones, an effect that has become more widely accepted over the years despite various attacks from regulators.
A buoyant economy produces an injection of liquidity into assets, something that can even be a factor in inflation as long as there is an imbalance between productivity and the credit that is injected into the market. A productive economy can inject liquidity without creating inflation, however, this is not a reflection of the current reality of a financial system leveraged with derivatives.
Like traditional assets, cryptocurrencies react to the Fed's interest rates, as a result of which market liquidity is cut by making bank credit more expensive, meaning that investors have less opportunity to invest and choose to seek refuge in other asset classes.
For the current financial system, Bitcoin and altcoins are risk markets, markets that explode in the euphoria of a highly liquid and speculative economy, but they are also reactionary to interest rates and relevant macroeconomic news that would cut into that valuable liquidity. In time, this market will become more stable, even having assets such as Bitcoin as a store of value on par or superior to the gold option, for now, correlation and the risk market label is a reality, so alcoins and Bitcoin may present more volatility in announcements such as interest rates.
Currently it is known that the FED intends to hold interest rates with no possibility of cuts, at least at the time of this writing, markets reacted slightly although rates rose, this is a positive indication for Bitcoin even though it is still in a range at the moment.
The indices show market sentiment, which implies that investors are optimistic about the upcoming inflation announcements and perhaps a more dovish FED interest rate statement. Also, an important fact is that while there is inflation there is no sign of recession yet, so investors may invest first in traditional assets and then move into risk markets depending on conditions and announcements such as CPI, jobs, among other relevant data.
The new highs in the indices, show that money is entering the financial system, as this bullish euphoria continues, no doubt many investors will be betting on Bitcoin, especially if interest rates fall, which opens the liquidity tap and allows a lot of money to enter other markets such as cryptocurrencies, which is now better viewed by institutional investors.
It is inevitable, Bitcoin will rise in price and everything points to it being a very positive year for the ecosystem, however, it is important to note that this is not a common asset, it is an alternative to the system even though there is some correlation. Although there are factors that may hinder Bitcoin's price rise, institutional investors are now looking to Bitcoin as an alternative to a financial system full of holes.
Saying that Bitcoin will go up in price is not the same as saying that in a single green candle the price will go through the roof, there may be room for price corrections and the news of the spot ETF has put our feet on the ground, however, in the medium to long term, Bitcoin and some altcoins such as Hive are very attractive assets with a bright future.
Thank you for your reading, until next time
