Bitcoin bears have come out of hiding over the last few weeks as the number one cryptocurrency struggles to stay above $10,000.
Since the digital asset printed a 2019 high of $13,880 on June 26th, market participants started to feel jittery. In the last month, market sentiment has ranged from fear to extreme fear.
The overall bearish outlook is encouraging traders to post bearish charts.
While bitcoin price action seems indecisive at best, it appears that the current economic climate is likely to impact the value of the dominant cryptocurrency. One analyst believes that the turbulence brought about by slowing jobs growth and consumer spending will be significantly favorable for bitcoin.
The manufacturing industry has been in the headlines in the last few weeks after a report revealed that the ISM Manufacturing Index has dropped below 50 for the first time since 2016. The plunge to 49.1 indicates that the manufacturing industry is shrinking.
Rates collapse when manufacturing collapses.
The declining interest rates implies that the economy is headed for a recession. Diane Swonk, chief economist at Grant Thornton elegantly explains this dynamic.
It appears that even without Trump’s interference, interest rates are likely to plunge due to the shrinking manufacturing industry. With the manufacturing industry in trouble, Samantha LaDuc said that,
logic dictates that jobs will soon suffer and as a result the consumer.
While there have been a couple of times over the last eight years when manufacturing payrolls nosedived, private services payroll stayed afloat. These happened in 2013 and 2016. However, this time is different. The services payroll is slowing down along with manufacturing payroll.
This is another significant development as a drop in jobs growth in both industries will likely impact consumer spending.
With consumption almost ready to plummet, LaDuc says that we’re likely to face a
backdrop of business uncertainty and investment indecision.
The trader also noted,
I am still expecting the S&P 500 to take out recent lows and trade sideways-to-lower into 2020 elections.
This sideways trading along with the economic uncertainty is ultimately beneficial to bitcoin.
With the current economic backdrop, it is very possible for capital to flow out of the S&P 500 and into safe-haven assets. Samantha LaDuc expects investors to start buying gold, bonds, and bitcoin. She emphasized,
I can see a pattern where safe haven bets of bonds, gold, Yen and even bitcoin are being bid up not just in reaction to their value representing better return than most equities currently in this geo-politically charged environment and negative yield world.
She also added,
These safe haven assets are perceived as protection for portfolios as well as delivering alpha.
In terms of delivering alpha, bitcoin is second to none. The cryptocurrency has given a greater risk-adjusted return compared to other major asset classes in the last five years. According to the analysis published by OKEx on Medium, bitcoin has a 4-year Sharpe ratio of three, which means that it has an excellent rate of return for a given level of risk. Every other asset has a Sharpe ratio of below two.
With the U.S. economy showing signs of vulnerability and according to Samantha, the S&P 500 will likely provide limited upside alongside other major assets, it is only a matter of time before market makers and institutional investors see bitcoin as one of the best investment options.
Last modified: June 14, 2020 9:39 AM UTC