Why Lack of Leverage Could Keep Bitcoin and Stocks Climbing Despite Selloff
At the turn of September, Bitcoin crashed by over $2,000 to below $10,000, and the stock market saw a steep selloff – particularly in tech stocks like Apple, Amazon, Alphabet and other A-list companies.
But the selloff taking pause may only be “emboldening bulls” and further encouraging them to buy the dip with confidence. And until more leverage is added to the market, analysts say, more upside is likely before the bubble bursts.
Is The Tech Stock Bubble Popping Or Are Emboldened Bulls Buying Up The Dip?
All across Wall Street, top stock market analysts are warning about the current mania getting out of control. Tech company valuations have ballooned since the pandemic began, and only recently took a step backward toward reality.
The selloff in the six top tech stocks combined was equal to or greater than five Bitcoin network and market cap’s worth of value.
RELATED READING | HOW TURNING STOCK MARKET SENTIMENT COULD DRAG BITCOIN DOWN FURTHER
The ongoing correlation between crypto and the stock market had previously kept the asset classes climbing side by side. When sentiment turned recently, both classes fell again together.
The continued parallels in price action could mean that Bitcoin will benefit from stock market bulls being “emboldened” by recent support holding, according to Andrea Cicione, head of strategy at independent investment research firm TS Lombard.
BTCUSD Versus NDX Nasdaq Tech 100 Index Comparison | Source: TradingView
How Bitcoin Can Survive The Stock Market Bubble Burst And Benefit From FOMO
Cicione claims that unlike other peaks in price, there’s a distinct lack of leverage in the market that has prevented a trigger in more downside. The amount of leverage he says may not be”enough to burst the bubble,” but closes his comment with a “yet.”
“If the recent selloff does not intensify further, the whole episode may end up simply emboldening the bulls to buy the dip and take even more risk,” Cicione said.
After such a severe drop, weak hands have already been shaken out and now with support holding both Bitcoin and stock market bulls may be regaining both their footing and confidence for another push higher.
Further growth in the stock market would – as Cicione warns – could reflate the tech stock bubble and keep valuations climbing. But that doesn’t change the fact that there’s still a bubble in stocks that is ready to burst.
RELATED READING | TECH STOCKS BLEED OUT FIVE FULL BITCOIN NETWORK’S WORTH OF VALUE IN THREE DAYS
When it does, things could very well get bad for Bitcoin and cryptocurrencies, unless they finally shake off the correlation between the two vastly different types of financial assets.
As for what could separate the two classes once and for all? Confirming $10,000 as support and a triangle breakout, could cause serious FOMO in crypto, beyond what’s going on in stocks. The allure of prices soaring while stocks potentially start to stagnate or suffer could further fuel Bitcoin’s rise from the inflow of stock capital alone.
As it stands, Bitcoin bulls could have more to gain from support holding market-wide here.
Featured image from DepositPhotos, Charts from TradingView
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