“Rosy” Revenue Estimates Will Hurt Bitcoin, BTC Struggles $20K
Bitcoin continues to lose momentum on low timeframes, as bulls failed to follow through on yesterday’s upside momentum. The cryptocurrency rejected around the mid-range of the current levels and may be heading for a retest of local support.
At the time of writing, the Bitcoin price is trading at $20,000 with a loss of 1% and a gain of 3% in the last 24 hours and 7 days respectively. Despite the negative price performance, BTC remains relatively strong compared to other cryptocurrencies in the top 10 by market capitalization.
Bitcoin With Record Correlation With Gold And Stocks In 2022
Data from Kraken Intelligence shows that Bitcoin has increased its correlation with asset risk, and with other traditional assets in the old financial market. This phenomenon has been common in 2022, as global markets move in tandem to react to the US Federal Reserve (Fed).
The financial institution has tried to slow inflation in the US dollar by raising interest rates. This has had negative consequences for all asset classes.
As seen in the charts below, Bitcoin prices saw a decrease in correlation with major stock indices, the Nasdaq 100 and the S&P 500. In recent months, this correlation has been at its lowest below 0.5, but is approaching high correlation levels again. of around 0.8 and 0.74 respectively.
Something similar happens with gold and US government bonds. Unlike stocks, Bitcoin has been less correlated to the precious metal and US Treasuries, but that appears to be changing in light of the rise in economic uncertainty.
Earnings Seasons May Limit Bitcoin Bullish Momentum
This data suggests that Bitcoin may be more and more exposed to events related to stocks and major indices. Jurrien Timmer, director of macro for the investment company Fidelity, mean the upcoming earnings season may bring hurdles for traditional assets.
Timmer supports his theory on the recent rise in the US dollar, as measured by the DXY index. This tool allows market participants to get a sense of the strength of the dollar compared mostly to the Japanese yen, British pound and euro.
We see the same disconnect in the chart below, when we compare the dollar’s rate of change to expected EPS growth (NTM divided by LTM). Estimates should come down faster, it seems. /4 pic.twitter.com/G49jAMu0Y0
— Jurrien Timmer (@TimmerFidelity) 6 October 2022
The higher the DXY index, the weaker these other currencies are, and by extension other risky assets such as Bitcoin. Timmer claims that 40% of S&P revenue comes from overseas, which could lead to a noticeable negative impact on profit margins and US companies’ earnings. The expert wrote:
The expectation is that income growth will fall to 4% and remain there. Given that DXY’s rate of change is +19%, that seems too high. So, based on the dollar and market breadth, we could have some negative earnings surprises.
