According to Buffett, the global stock market entered the “bubble zone”, said world market analyst Holger Zschaepitz on August 9th. The recent correlation between Bitcoin and stocks could see BTC face a pullback as well.
The global stock market entered bubble territory: Source: Holger Zschaepitz, Bloomberg
Share prices have risen steadily over the past few weeks. driven by a growing appetite for assets at risk. Last month The Dow Jones Industrial Average (DJIA) rose from 25,706 points to 27,433, an increase of 6.7%.
Why stocks are showing signs of a bubble and how this could affect Bitcoin
The Buffett Indicator measures the valuation of the stock market by dividing its market capitalization by United States GDP. Trying to find a fair rating of stocks in relation to the US economy. When the indicator is above 100, it indicates that the stock market is on its way into the bubble.
Since April, after the pandemic started, US stocks rose several trillion dollars on favorable market conditions and stimuli. Specifically, Technology stocks significantly better than the rest of the stock market, drive the market higher.
Due to various macro factors Tech stock valuations are historically high relative to earnings. Hence global markets first entered the area of the bubble in 2018. Zschaepitz said::
“The global equity markets have reached another milestone. All stocks are now worth more than 100% of global GDP for the first time since 2018, indicating stretched valuations. For Warren Buffett, a market cap greater than 100% means stocks in the bubble area. “
Is not present a coherent link between stocks and Bitcoin Otherwise, BTC has been following the equity trend for the past four months. Skew’s data show that since early July Bitcoin was very similar to the performance of the SP 500.
When the actions begin A decline as investors seek security in bonds and government bonds for fear of an overvalued market could negatively impact the price of Bitcoin. The momentum in the equity markets remains strong and during an uptrend The market can remain overheated for a long time.
The correlation between Bitcoin and the SP 500. Source: Skew
Analysts are not interested in BTC in the short term
Short term, Analysts generally expect an uptrend due to a temporary increase in short positions. Bitcoin tends to suffer a small contraction when traders begin to aggressively close the market with overly leveraged contracts during a consolidation.
A pseudonymous trader known as “Byzantine General” suggested that an uptrend is very likely as many traders are short.
A diagram of the settlement level of Bitcoin suggests that settlement prices for a large number of shorts are around $ 11,800. Short processing stages for buyers They represent liquidity and whales have the incentive to seek that liquidity at higher levels.
Graph showing the degree of liquidation of Bitcoin shorts. Source: Byzantine general
Due to the general structure of the market, Bitcoin could jump from USD 11,800 to USD 12,000 in the short term when buyers liquidate over-indebted short contracts. Another pseudonymous trader named “Satoshi Pinball” said that BTC appears to see “clear consolidation ahead of the next stage for BTC”.