Bitcoin Decouples from Stocks as Bullish Sentiment Returns
After moving north of the USD 55,000 mark on Wednesday, bitcoin (BTC) is once again getting investors excited. And this time around, financial institutions appear to be taking greater interest in the most popular cryptocurrency, even as stocks and other risk assets have suffered in price.
Over the past 7 days, bitcoin has been on a bull run that has brought its price up by more than 30%. At the same time, the US stock market index S&P 500 has remained more or less flat since last week, after having traded lower throughout the month of September, losing 4.8% over the course of the month.
The diverging prices have led to a renewed discussion on the relationship between bitcoin and the stock market, with some observers and market participants now suggesting that the narrative surrounding bitcoin could be changing to again focus on its gold-like store-of-value properties.
Among them was MicroStrategy CEO and famous Bitcoin bull Michael Saylor, who said that BTC “is breaking out from other cryptos due to regulatory expectations, making it the clear choice for institutional investors seeking digital property as a store of value.”
Highlighting a similar narrative was also a Bloomberg report today, which said that a decoupling of stocks and bitcoin could “revive one of the longstanding promises of cryptocurrencies […] that they can serve as a hedge to protect investment portfolios when equities sell off during times or turmoil.”
Further, the same report also pointed to a note from Wednesday by strategist Nikolaos Panigirtzoglou and others at the Wall Street investment bank JPMorgan, which said that institutional investors could be returning to bitcoin, with some perhaps betting that it is a better inflation hedge than gold.
The bullish tone from JPMorgan’s strategists came on the same day as Dawn Fitzpatrick, CEO of Soros Fund Management, the family office of billionaire investor George Soros, confirmed that the firm does own “some [bit]coins.”
Meanwhile, data from the Chicago Mercantile Exchange (CME), the US-based exchange where regulated bitcoin and ethereum (ETH) futures are traded, once again showed that futures are trading at a premium to spot prices.
Given that the CME is the preferred place for financial institutions to speculate on the bitcoin price, the premium suggests high institutional demand for exposure to the number one cryptocurrency.
And while CME futures are trading at a premium, shares of another regulated bitcoin investment product – the Grayscale Bitcoin Trust (GBTC) – have traded below their fair value.
The shares are trading at a discount of 16% to spot bitcoin prices now, and “may get worse,” senior exchange-traded fund (ETF) analyst for Bloomberg, Eric Balchunas, said, suggesting that a potential approval of a bitcoin futures-backed ETF in the US would be bad for GBTC.
Bitcoin futures ETFs getting approved would be bad for $GBTC as we've said, discount at 16% now and may get worse. BUT.. worse it gets the more enticing it gets as a trade where ppl buy $GBTC on hopes of instant payday if able to convert to ETF. Here's hypotheticals from @JSeyff pic.twitter.com/WZjRehCm4e— Eric Balchunas (@EricBalchunas) October 6, 2021
Meanwhile, writing in a letter to investors yesterday, Dan Morehead, CEO of crypto investment firm Pantera Capital, reminded readers about the old Wall Street saying of “buy the rumor, sell the fact.”
“Definitely working in our space,” Morehead wrote, before going on to explain:
“All during 2017, the markets were rallying with the mantra ‘When the CME lists bitcoin futures, we’re GOING TO THE MOON!!!’” The markets then did rally, 2,440% until the same day futures listed.
“That was the top,” he said. “One of those -83% bear markets started that day.” That cycle was repeated recently, he claimed, as the “whole industry reveled” in Coinbase’s direct listing. The bitcoin market was up 822% coming into the day of the listing, BTC peaked at USD 64,863 that day — and then a -53% bear market started, wrote Morehead.
“Will someone please remind the day before the bitcoin ETF officially launches? I might want to take some chips off the table,” the CEO concluded.
At 09:42 UTC, bitcoin was up 7.4% over the past 24 hours, trading at USD 54,219, after a retracement from its high of USD 55,750 on Wednesday. Ethereum, meanwhile, traded at USD 3,562, up 5.7% over the same time period.
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