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A new warning about Goldman Sachs’ U.S. stocks could spell trouble for Bitcoin and the crypto markets in general.
In a note to investors, the financial giant says the top five stocks in the S&P 500 now have a 20% share of the overall market capitalization of the benchmark index. Similar changes were reliable indicators of the main market recessions in 1990, 2008, 2011 and 2016.
Via Bloomberg,
“Sharp falls in market breadth in the past have often signaled large declines in the market. The narrow amplitude can last for long periods, but past episodes have indicated below-average market returns and eventual momentum reversals. ”
Another significant drop in the stock market may not bode well for BTC. A recent Coinbase analysis explains why Bitcoin crashed alongside traditional markets last month, despite the fact that it often acts as an uncorrelated asset.
“When investments fall sharply, investors naturally look for ‘safe haven’ assets, things that will not lose their value (usually USD). But everyone who rushes out immediately produces a liquidity crisis, where the number of Sellers far outnumber the number of buyers, causing prices to drop lower and lower.
To add insult to injury, many large asset allocators had leveraged positions, where just $ 1 of actual value backed ~ $ 2- $ 3 of borrowed value. When the markets collapsed, these leveraged positions were in danger of becoming insolvent and forced to close, placing an additional premium on USD. The general liquidation combined with a massive deleveraging event resulted in an intense cash rush. At the moment, investors do not sell what they want to sell, they sell what they can. This includes Bitcoin and other cryptocurrencies, but each liquid market experienced large losses on March 12. “
Crypto analyst Josh Rager says all bets are off if equities take another big leap.
Although optimistic about Bitcoin’s price action from a technical perspective, Rager says that crypto traders should only expect BTC to hold if the stock market can avoid another major crash.
$ BTC continues to move stable with the stock market
Again, it’s not a 1: 1 ratio, but there’s no reason to draw $ 2k to $ 3k BTC meme charts.
Unless he $ SPX tanks, Bitcoin will have more than $ 6k
Possible future pullbacks in both markets, but until stocks drop, I’m not bearish on Bitcoin’s price pic.twitter.com/17NfYla28O
– Josh Rager 📈 (@Josh_Rager) April 22, 2020
Disclaimer: The opinions expressed in The Daily Hodl are not investment advice. Investors should do their due diligence before making high-risk investments in Bitcoin, cryptocurrencies, or digital assets. Please note that your transfers and operations are at your own risk, and any loss you may incur is your responsibility. The Daily Hodl does not recommend the purchase or sale of any cryptocurrency or digital asset, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
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