Wednesday, September 23

Bitcoin versus Dow Jones: Who’s the king?


In mid-December, bitcoin futures was launched in US markets and followed by a bearish trend.

This cryptocurrency unit price plummeted from US$19,000 plus to US$6.000 in early February, making a loss of almost 70 per cent in value.

Meanwhile, the Dow Jones benchmark has been ascending during the same time until the sharp correction came on  February 2.

The trigger of panic sell-off in the world largest stock market was mainly due to fear of rate hike after the new Federal Reserve chief Jerome Powell came into office.

In January, the Dow Jones rose while the yellow metal prices also escalated to its 17-month high at US$1,366 per pound in bullish demand.

Theoretically, we perceive the rise in Dow Jones and gold prices have been pushed by the waning US Dollar Index after the US tax reform was signed into law before the end December 2017.

In simple correlation, we have noticed the movement of fund from crypto monies to real equity and fixed asset, and vice versa.

Moving into early February, the fear of US credit tightening in February has been verified by the recovery of Dollar Index from 88.00 region to above 90.00 benchmark.

What might daunt us in the near future will be the impending trend of these three correlative instruments in the global market.

Will Bitcoin return to new high above US$20,000 amid dropping oil stocks and precious metals?  In our opinion, the very first correction seen in US and Asian market early February might not be a real correction.

In fact, the historical data shown that major stock indexes have never plunged into the market crash by just completed one toppish formation.

Moreover, the tax relief expected to spur good earnings in first quarter seasons among all US companies would probably propel another double-top formation or a new high in the Dow Jones benchmark in the month of May.

Therefore, the current forecast of bitcoin versus Dow Jones and gold will be moving into a typical inverse correlation up until the end of March.

If these three major instruments remain sluggish, then we foresee the most likely instrument to be edging up will be dollar strength.

Just two months ago, we expected Bitcoin to plunge in January for a wipe-out of ignorant investors. Currently, the cryptocurrency has successfully pulverised the confidence of buyers and will continue to iron out the confidence of investors until they give up completely.

Hence, we reckon Bitcoin prices will be threading sideways for a couple of months without definite direction.

When we compare to the real situation of rising inflation and huge tax-savings in American markets, it does make sense for investors to toss the monies back into stock markets and Gold asset as safe haven.

Hence, the market climate will at least be optimistic with increasing liquidity to be created in coming months.

Considering that crude oil prices will hover around US$60 per barrel as a sign of global recovery, we reckon the dollar has not many reasons to escalate too rapidly in light of swelling US budget debts.

In summary, we foresee the movement of funds will soon return to commodity and equity markets by the second quarter while moving out of virtual cryptos. Ironically, many crypto investors will be thrown out of the market during this period.

Timing is the king of investments. It helps you to fish for the correct profits at different interval of market cycles.

Trade well with your monies and reap the returns for a healthy retirement.

Dar Wong is a registered Fund Manager in Singapore. The opinions are solely at his own. He can be reached at [email protected]