Bitcoin (BTC) is once again taking cues from the stock markets and prices may fall below $10,000 if equities see further sell-off, according to analysts.
- The top cryptocurrency fell by 4.5% on Monday to register its biggest single-day decline since Sept. 4.
- That came as global stock markets nursed sharp losses and the safe-haven U.S. dollar gained ground on renewed coronavirus fears and uncertainty over the 2020 U.S. election.
- Bitcoin is currently priced at around $10,460, down nearly 2% on the day, according to CoinDesk's Bitcoin Price Index.
- "Sustained risk-off in broader equity markets will lead to heavy offers across major cryptocurrencies," Matthew Dibb, Stack Funds' co-founder and COO, told CoinDesk. "Bitcoin may revisit September lows [around $9,870]."
- European equities are reporting moderate gains at press time, however, futures tied to the S&P 500 index are down 0.3%, signaling scope for extension of Monday's sell-off.
- Historically, September has been a weak month for the S&P 500 and the index performs poorly in October in the U.S. election years, according to crypto analyst Lark Davis.
- "As such, bitcoin could be in for some big bumps over the next six weeks," Davis tweeted.
- A potential recovery in stocks may have a little positive impact on bitcoin, unless it is accompanied by an uptick in precious metals like gold, according to Dibb.
- "While Nasdaq recovered towards the end of Monday's session, our concern in relation to bitcoin is its heavy correlation with gold and silver, which are trading further down [Tuesday]," he said.
- The 60-day positive correlation between gold and bitcoin strengthened to record highs earlier this month.
- Gold is currently trading near $1,900 per ounce, representing a 0.4% decline on the day, and fell nearly 2% on Monday. Meanwhile, silver dropped by 7.6% Monday.
- Bitcoin's daily chart (above left) shows a "bear flag" breakdown – a sign the bounce from the recent low of $9,869 has ended and the pullback from August highs above $12,400 has resumed.
- "The cryptocurrency has breached the horizontal support of $10,500 (February high) and could slip to $10,000," Patrick Heusser, senior cryptocurrency trader at Zurich-based Crypto Broker AG told CoinDesk.
- Gold's descending triangle breakdown also suggests scope for deeper declines.
- Dibb is also keeping a close eye on the U.S. dollar index (DXY), which tracks the greenback's value against major currencies.
- "A breakout of the USD from its two-month consolidation will likely lead to continued selling and pressure on Bitcoin," Dibb said.
- The DXY has largely been restricted to a range of 92.00 to 94.00 since the end of July.
- A move above 94.00 would confirm a breakout and may weigh over bitcoin.
- Bitcoin's big move from $9,000 to $12,000 seen in the second half of July was accompanied by a broad-based sell-off in the U.S. dollar.
- Federal Reserve Chair Jerome Powell will testify before the U.S. Congress on Tuesday and is expected to reiterate the central bank's commitment to holding interest rates low for a prolonged period.
- Since the markets have already priced in low rates, stocks may not see a big relief rally.
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