Will Bitcoin and shares fall back to pre-corona level?
Bitcoin faces the prospect of broader downward corrections as hedge funds cut stocks that rose impressively during the coronavirus pandemic.
According to the Financial Times, some fund managers have increased their bets against stocks in technology, home fitness equipment, food retailing and healthcare. Tim Campbell of Singapore-based hedge fund Longlead Capital Partners, for example, called these stocks „the COVID over-earners“.
In the middle of the coronavirus pandemic, Bitcoin Machine review and the U.S. stock market rose and corrected hand in hand.
The co-founder/chief investment officer commented that the current yield curve of some pandemic winners does not seem sustainable in the long run. He predicts that they would eventually return to the growth rate before the coronavirus.
Bitcoin and its positive correlation with the S&P 500, Dow Jones and Nasdaq Composite during the pandemic.
Analysts have already argued that estimating the true value of stock market winners appears complicated, especially in an environment of extremely low interest rates and massive stimulus measures by the central bank and the government, which during the pandemic supported even the worst looking stocks.
Andrew Sheets, Chief Strategist of Morgan Stanley, believes that technology – the sector with the best results of the year – is at the forefront of the battle to overcome the sharpest declines. Sheets compared to FT:
„If we can get a vaccine and the market thinks 2021 looks more normal, investors might think, ‚Let me sell companies where it’s as good as it is now and buy companies with more cyclical earnings‘.
Analysts noted that the Federal Reserve’s near-zero interest rates, combined with its never-ending program of bond purchases, reduced U.S. government bond yields. As a result, investors‘ appetite for riskier assets increased, leading them to buy crypto currencies and stocks.
In addition, the decision of the US Congress to pass a $2 trillion stimulus package weighs on the US dollar. This has also caused investors to seek refuge elsewhere – from which Bitcoin was the first to benefit. It rose by more than 200 percent during the dollar decline.
A potential decline in the U.S. stock market as a whole carries the risk that Bitcoin could be caught in a similar downward spiral. Long-term crypto investor Gordon Gekko has called it a „second-wave effect“ – where investors shed their most profitable assets to offset losses elsewhere.
This happened, for example, in March 2020.
When the stock market showed signs of slumping more than usual, investors reduced their portfolios by shunting the most profitable assets for cash. As a result, gold and Bitcoin – two of the best performing assets before the crash – crashed along with the S&P 500, the Dow Jones and the Nasdaq Composite.
Fund managers who make serious bets against the booming stock market are also exposed to the risk of losing their capital. The reason for this is the hope that Congress would pass the second Coronavirus Relief Act by the time of the US presidential election on November 3.
The package, which could range from $1.6 trillion to $2.3 trillion, would further reduce the attractiveness of holding cash. As a result, investors would inject more money into the stock and commodity markets based on the so-called „there-is-no-alternative“ factor.
And Bitcoin could also benefit from this sentiment.