The “Buffett Gauge” indicates that the US stock market is currently at dot-com bubble levelYahoo Finance reported on August 20. The indicator divides the Wilshire 5000 index by the GDP of the United States.
On August 14, Berkshire Hathaway, under the direction of Warren Buffett, invested in Barrick Gold, the world’s second largest precious metals miner. Some analysts said Bitcoin (BTC) could benefit from this in the long term as it coincides with this stock market bubble alert.
The historical average of the indicator is 1 and before the dot-com bubble it is 1.71. Indeed, The Buffett indicator is at 1.7, which indicates that the stock market is grossly overvalued.
If the U.S. stock market collapses on fear of the stock’s overvaluation, Bitcoin could see a huge backlash.
Does this give some insight into Bitcoin’s long term trend?
Tom Essaye, founder of Sevens Report Research, says stocks are “fundamentally overvalued” when Buffett’s gauge hits 1.3.
The current level of 1.7 indicates that a sharp downtrend in the equity markets is possible if the trend reverses. He explained:
“What does this mean for us? It means keeping a long-term inventory on longer-term accounts and making sure you have assets (like a house, etc). But it also means that this cycle of asset inflation is better not to stop because, as 1.7 times the market capitalization ratio to GDP shows, when asset inflation stops, it is long way to basic support ”.
Over the past four months, Bitcoin has shown some correlation with the SP 500 and gold. Since the end of July, BTC has been following the price of the precious metal more closely due to the fall of the US dollar.
It could be argued that a possible pullback in the US stock market could add momentum to Bitcoin. Some institutions have started to view Bitcoin as a legitimate store of value, which has led to an increase in institutional inflows into BTC.
The correlation between Bitcoin and Gold. Source: Skew.com
The correlation between Bitcoin and the SP 500 broke slightly last week as stocks continued to rise. The price of BTC fell to $ 12,400, down 8.6% to just $ 11,370.
The deterioration in the correlation between Bitcoin and the US stock market, and the simultaneous decline in BTC and gold, reinforce the bullish argument for BTC when stocks fall.
What do technical analysts think in the short term?
Short term technical analysts Carefully expect a consolidation phase for Bitcoin.
One possible short-term scenario for Bitcoin. Source: Michael van de Poppe
Michael van de Poppe, A full-time trader on the Amsterdam Stock Exchange said a drop below $ 11,500 could lead to a decreasing divergence. He said::
“Well, in the daily timeframe, we have reached the critical level to maintain the upward momentum. White small square bearish divergence will only be confirmed if we lose this USD 11,500 zone. Hold a small white square here = jumps on altcoins. White Small Square Overall, the season for altcoins and altcoins continues. “
Robert Kiyosaki, author of the best-selling book “Rich Dad Poor Dad,” also said a banking crisis was looming. He stressed that Buffett had reduced his positions in major U.S. banks, suggesting that gold, silver and bitcoin could make significant profits as safe havens.
The coincidence of a closer correlation between Bitcoin and gold and the stock market rally could increase the likelihood of a BTC uptrend as stocks begin to fade.