24 December 2020
The recent dampening of the crypto market sentiment comes on the backdrop of consolidation in stock market, as investors become jittery with the rising cases of COVID-19 across the country.
On Monday, U.S Treasury Secretary Steven Mnuchin hosted a meeting with G7 finance ministers and central bank officials for charting out the next set of measures as the second-wave of COVID-19 intensifies across the U.S. and part of Europe.
While there’s a common conception that cryptocurrencies are hedge to traditional stock markets, historical chart patterns suggest the opposite. For a long time, crypto markets have moved in tandem with the stock market.
The classic example is the stock market and the crypto market correction this year in March 2020. Holger Zschaepitz, a market analyst at Welt, said:
“Global stocks under pressure as pandemic concerns outweigh stimulus hopes. S&P 500 Futures dip amid fears of restrictions as infections climb. Gold trades higher at $1868. #Bitcoin at $19.1k.”
Consolidation in Stock Market Creates Higher Volatility
Since October 30, the U.S Stock market indices like the Dow Jones Industrial Average (INDEXDJX: .DJI) and the S&P 500 (INDEXSP: .INX) have jumped around 13% so far.
During the same last six-week period, Bitcoin and the crypto market has also registered a major rally. Moreover, even the technical charts and the recent price convergence for Bitcoin (BTC) shows that it is trading at a very critical level at this stage.
If Bitcoin (BTC) price slips further below $18,000 levels, it can go all the way to $14,000. Although a strong possibility of short-term correction hovers around, both – the stock market and the crypto market analysts are bullish for the 2021 outlook.
As per CNBC’s analysts, the S&P 500 can surge anywhere between 8%-22% going all the way to $4500. Similarly, several crypto analysts have predicted BTC price to surge anywhere between $25,000-$100,000 by the end of 2021.
Interestingly, the institutional fund inflow in the crypto market remains high. Citing data from digital asset management firm CoinShares, Reuters reported that institutional investors have poured $429 million in crypto funds for the week ending December 7.
This was the second-highest weekly inflow by institutions. Grayscale remains the largest crypto fund with a total of $4.3 billion worth of inflows so far in 2020. James Butterfill, investment strategist at CoinShares said:
“On an anecdotal level, based on our client conversations over the course of 2020, we have seen a decisive shift from enquiries of a speculative nature to those that begin with comments such as, ‘bitcoin is here to stay, please help us understand it’. Given the levels of interest, this suggests we are only on the cusp of institutional adoption rather than it cooling down.”
In its latest announcement later on Monday, business intelligence firm MicroStrategy has proposed selling $400 million of debt securities to buy Bitcoins. Earlier this week, MicroStrategy already purchased an additional 2574 BTC worth $50 million. The company currently holds 40,824 BTC in total and has invested $475 million of liquid cash so far.
ETH Price Enters Correction But Sees Larger Institutional Adoption
Ethereum (ETH) price corrects as it struggles to moves past $600 levels in the last two days. On the upper side, Ethereum needs to break past and give a close above $620 levels after which it will rally to its next target of $800.
Interestingly, Ethereum remains the major attraction for institutional players. During the last week, total institutional inflows in ETH price stood at $87.1 million.
In his recent interview with Bloomberg, Grayscale Investments managing director Michael Sonnenshein explained why Ethereum (ETH) has been the major attraction among investors this year:
“Over the course of 2020, we are seeing a new group of investors who are Ethereum-first and in some cases Ethereum-only. There’s a growing conviction around ETH as an asset class. The development of the asset class has continued to solidify itself.”
The Grayscale Ethereum Trust (ETHE), which is a primary fund from digital asset management firm Grayscale, has more than $1.6 billion worth of assets under management.