Both bitcoin and the U.S. stock markets have witnessed a notable recovery rally over the past couple of weeks, but it’s the cryptocurrency that’s taken the lead.
Bitcoin clocked a 3.5-week high of $7,459 early on Tuesday, meaning the cryptocurrency was up 4.2 percent from the yearly opening price of $7,160. Since then, prices have fallen back slightly, putting the year-to-date gain at around 3.2 percent.
Meanwhile, the U.S. stock markets are still trading in the red on a YTD basis. The S&P 500, Wall Street’s equity index, has pulled off a strong 21.5 percent rally from lows near $2,190 reached on March 23, but even so it’s still down 17.5 percent for the year.
Gold, a classic haven asset, has gained around 2 percent so far since Jan. 1.
At press time, bitcoin is changing hands near $7,445 – up around 90 percent from the low of $3,867 observed on March 13, according to CoinDesk’s Bitcoin Price Index.
As bitcoin looks to be moving in tandem with the equity markets, what’s behind bitcoin’s outperformance of the S&P 500 on a year-to-date basis?
Rally fuelled by crypto investors
Bitcoin may be gaining altitude because the market is now dominated by long-term investors who believe in the narrative that the cryptocurrency is a hedge against global economic duress brought on by the coronavirus pandemic.
Bitcoin’s rapid drop from $8,000 to $3,867 seen on March 12 and March 13 was mainly fueled by long liquidations by institutions and macro traders. “These non-crypto dedicated professionals participants squared off their long positions to raise the cash needed to fund margin calls,” said Richard Rosenblum, co-head of trading at GSR.
“Following the liquidations, the market is primarily made up of crypto-native firms and long investors. Not surprisingly, bitcoin is acting more bullish,” Rosenblum said.
The coronavirus-led sell-off in the equity markets, triggered a global dash for cash, which saw macro traders sell everything from gold to bitcoin.