As the bitcoin price languishes at $8,300, down more than 12% on the day, Fundstrat Co-Founder Thomas Lee has an unfortunate truth for crypto bulls. Lee does not believe bitcoin is a safe haven; in fact, quite the opposite as he forecasts that the S&P 500 will need to hit fresh highs this year before BTC can.
– reinforces our ‘unpopular’ opinion bitcoin does not do well in a ‘trendless macro’ environment.
– New highs needed in S&P 500 before $BTC can blast off.
Why? We think crypto is retail and thus, risk on https://t.co/y5Yo5NepPz
— Thomas Lee (@fundstrat) September 25, 2019
S&P 500 May Be Bitcoin Price’s Key Fundamental
The fundamental reasoning behind the strategist’s claim is sound. He and his team at Fundstrat believe that retail investors, not institutions, drive the major crypto’s price. A strong stock market typically helps to encourage smaller investors to take on more risk. Therefore, Lee’s theory is that a record-breaking S&P 500 likely equals a well-funded retail consumer with some money to burn. So far, he has been correct that a trendless stock market appears to be of no benefit to the bitcoin price.
U.S.-China Trade War Gave Hope for Bitcoin “Safe-Haven” Theorists
As the S&P 500 has proven resilient to geopolitical drama, the safe-haven qualities that many believed they saw in some crypto markets have faded from sight. The trade war between the U.S. and China was seen as a critical fundamental for the flight from a weakening Chinese yuan into BTC/USD.
While there has been no resolution to this trade conflict, there certainly has been no additional selloff in USD/CNY. The currency pair currently trades in a range just above the politically sensitive 7.000 price level. If China was to once again notably weaken its currency, this could be an excellent test as to whether there is any safe-haven demand for crypto left. The flipside of this would help prove or disprove Lee’s assertion that it is all about risk-on retail investing and bitcoin investors should be watching the S&P 500 instead.
BTC/USD Crashes Through Key Support as Crypto Market Goes Stale
It has been a strange few days in digital currency markets after the flash crash in BTC’s hash rate and subsequent steep selloff. A sturdy support level to the downside was breached as congestion around $9,300 gave way. Thomas Lee’s market theory does appear plausible. Nervy retail investors got tired of waiting around in low volatility so close to critical support at the bottom of the trading range.
Thus the fall in bitcoin became a self-fulfilling prophecy as fear of a crash manifested itself into one. The dip in hash rate is another indication of the market going stale, which contributes to Fundstrat’s point of view. An additional reason why BTC/USD may have come under pressure comes from the introduction of ICE’s Bakkt futures trading contracts, which provide an additional opportunity to short the largest crypto.
All eyes will be on the S&P 500 to see if a fresh bout of risk-on is the jolt that BTC needs to start a new bull-trend.