By DAR Wong
In mid-December, Bitcoin Futures was launched in US market and a bearish trend ensued. The cryptocurrency unit price plummeted from over US$19,000 to US$6000 in early February, registering a loss of almost 70 percent in value. In the meantime, Dow Jones Industrial Average (DJIA) benchmark has been ascending until the sharp correction that emerged on 2 February 2018. The trigger of panic sell-off in the world’s largest stock market was mainly due to fears of faster rate hikes after the new Federal Reserve chief Jerome Powell took over the reins.
In January 2018, DJIA rose along with the price of Gold which rose to its 17-month high of US$1366 an ounce owing to bullish demand. We theorised that the rise in DJIA and Gold prices was due to the waning Dollar Index after the US tax reform bill was signed into law, around the end of December 2017.
In terms of simple correlation, we have noticed the movement of funds from cryptocurrencies to real equities and fixed assets, and vice versa. Moving into early February 2018, the fear of US credit tightening was also reflected by the recovery of the Dollar Index from 88.00-point territory to above 90.00-point benchmark.
What might daunt us in the near future will be the impending trend of these three correlative instruments in the global market. Will Bitcoin rebound to new highs above US$20,000 amid dropping stock and precious metals?
In our opinion, the very first correction that we have seen in early February might not be a real correction. In fact, the historical data have shown that major stock indices have never completed a market crash within one toppish formation! Moreover, the tax-relief that is expected to spur good earnings in the first quarter earnings season among all U.S. companies will probably propel another double-top formation or a new high in DJIA in coming May.
Therefore, the current forecast of Bitcoin versus DJIA and Gold will be moving in a typical inverse-correlated manner till end-March. If these three major instruments remain sluggish, then we foresee the most likely instrument to be edging up will be the US Dollar.
Just two months ago, we had expected Bitcoin to plunge in January which had also wiped out most ignorant investors. Currently, the cryptocurrency has successfully pulverised the confidence of buyers and will continue to iron out the confidence of prospective investors until they give up completely. Hence, we reckon that Bitcoin will be trading sideways for a couple of months without a definite direction.
When we compare cryptocurrencies to the US real economy where inflation is rising and the tax rate is lower, it does make logical sense for investors to rotate the monies back into stock markets or Gold as the safe haven asset. Hence, the market climate will at least be optimistic. In addition to the huge tax savings, investors can also expect higher liquidity in coming months.
Considering that crude oil prices are hovering around US$60 per barrel as a sign of global recovery, we reckon that the US Dollar has not many reasons to escalate too rapidly in-lieu of swelling US budget debts. In summary, we foresee the movement of funds will soon return to commodity and equity markets in second-quarter earnings season while moving out of crytocurrencies. Ironically, many crypto-investors will be thrown out of the market during this period!
Timing is the King when it comes to investments. It helps you to fish for the correct profits at different interval of market cycles. Trade well with your monies and reap the returns for a healthy retirement.
~ DAR Wong is a registered Fund Manager with 29 years of Financial market experiences in Singapore. The expressions are solely at his own. He can be reached at firstname.lastname@example.org