Bitcoin below $20,000 may be your last chance to buy the dip. Here’s why.
In the last three months, Bitcoin (BTC 0.29%) has struggled to break out of a narrow trading range. Bitcoin has traded as low as $18,000 and as high as $25,000. With a recent surge this past week, Bitcoin is now testing an important price level: $20,000.
The stakes are high. If Bitcoin fails to break out here, investors can assume it will be locked in the same trading range for the rest of the year unless something changes dramatically. But if Bitcoin rises above $20,000 and stays there, this could be your last chance to buy the dip. You probably won’t see Bitcoin at $18,000 again.
The correlation between stocks and crypto
On September 26 S&P 500 fell to the lowest level of the year. Inflation concerns, recession fears and Fed tightening have all weighed heavily on the stock market. But at the same time Bitcoin is up more than 6% in the last week. The day after stocks fell, Bitcoin broke through the psychologically important $20,000 level.
Image source: Getty Images.
As a Bitcoin investor, this is exactly what you want to see. You want Bitcoin to rise even if stocks fall. In short, you will see cryptos lose their recent correlation with stocks. Admittedly, it is a very small sample set. Still, the past week suggests that the crypto market and the stock market may finally be “uncoupling” after an extended period this year where they appeared to be highly correlated.
Bitcoin and Fed rate hikes
Until this year, the conventional wisdom was that Bitcoin was “digital gold” and a hedge against inflation. Thus, even if inflation appeared in the US economy and the Fed had to tighten, it would not make a big dent in the price of Bitcoin. Just as investors flock to precious metals like gold during inflationary periods, they will also flock to “digital gold”, right?
So it spooked crypto investors this year when it didn’t happen. Inflation cast a shadow over the US economy and the Fed had to tighten its lending policies, and crypto fell just like all traditional assets. Crypto investors became Fed watchers, mesmerized by each new rate hike. With each round of inflation-fighting updates, crypto weakened further. The entire investment thesis around Bitcoin seemed to collapse.
That’s why the recent breakout from Bitcoin is so promising. It comes after a tightening of 75 basis points by the Fed. The stock market went down, but crypto didn’t. This is not to say that Bitcoin is rallying on news of the Fed rate hike. But it certainly won’t be hit as hard as shares. If you think of crypto as an asset class of its own, investors are going to compare the crypto asset class against others to see which one holds up best against a series of Fed rate hikes. If Bitcoin holds the line now, it could lead to new flows of investor money into crypto.
Bitcoin bulls are buying
Even more encouragingly, some major Bitcoin investors are putting their money where their mouths are. The best example here is the legendary Bitcoin bull, Michael Saylor. It is easy to dismiss what he says in interviews because you can assume that he is trying to increase the price of Bitcoin. On September 20, however, he revealed that his firm, Micro strategy, has been steadily accumulating Bitcoin in recent months. In an official SEC filing, MicroStrategy disclosed that it had purchased 301 Bitcoins at an average price of $19,851. For the sake of argument, let’s call it $20,000.
All of this makes me think now is the time to buy Bitcoin at $20,000. Cryptos are starting to lose their recent correlation with stocks. Fed rate hikes are apparently already priced into the crypto market, and cryptos are not being hit as hard as the stock markets. And big Bitcoin whales are buying. So it may be too late if you don’t buy the dip when Bitcoin trades at $20,000.
