The words Bitcoin and Bubble have long been associated since the coin made it into the mainstream media. In fact, as Bitcoin took a parabolic climb up the $1,000 price brackets at the end of 2017, the warning bells run heavily, and rightly so.
However, since Bitcoin’s price did retract over 80 percent following the all-time high of $20,000 the bubble talk became vindicated. Now, though, with Bitcoin back to halfway to its all-time high, the bubble talk is far less frequent as Bitcoin’s growth has been much more sustainable since 2018.
Yet, there are still concerns about a bubble for investors, but it is not from Bitcoin this time, rather the US Stock Market. Last week, the US Stock Market rebounded with traders flooding in. After nearly four percent losses the previous week, the S&P 500 is now at its own all-time high at over 3340.
Stock Market showing warning signs
Even though the Stock Market is on the up, its uptrend is signalling that there may be bigger concerns to be aware of. The market sits at 11% over its 200-day moving average—a strong signal that the market is overextended and ready for a correction.
Investors have certainly helped push the market higher, but one needs to look at the performance ratios as well as this reveals that low-risk stocks are outperforming the high-risk ones and when this happens the signs point to investor caution and weaknesses in the market.
If the market is indeed overbought, then the chance of a bubble pop is imminent. Many investors will see the ongoing new highs as a good investment sign, but as is often the case, continued highs have to give way to a fall. And, if the Stock Market does fall, and the threat of recessions continue to loom, it may be a perfect storm for Bitcoin.
Bitcoin emerging as a new asset class
Bitcoin has shown it has the potential to be a new asset class, and that it can be an alternative to the traditional market. However, the new territory that Bitcoin is looking to cross into is its possibility to be a hedge.
In times of an uncertain market, assets with negative correlation to traditional markets – like gold – are highly prized. This is the same case for Bitcoin, but if the stock market also goes; Bitcoin will be a lot more attractive