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Stock Market Recovers While Bitcoin Awaits Break Out

Stocks are miraculously recovering most their losses from Black Thursday. Yet, investors remain concerned about Bitcoin's outlook short-term outlook.

bitcoin drops show need for stable store of value

Key Takeaways

  • The Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 jumped over 3% on Tuesday as investors become more optimistic about the global pandemic.
  • Meanwhile, Bitcoin continues consolidating without a clear direction of where is headed next.
  • Prominent analysts remain concerned about the impact that earnings season could have on the stock market, which could spill over the cryptocurrency industry.

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The stock market continues to recover while Bitcoin consolidates, awaiting a major break out. If BTC proves itself as a hedge, then it could get the chance it has been waiting for.

Stock Market Shows Signs of Recovery

Stocks surged on Tuesday open as U.S. President Donald Trump affirmed that his administration is working to reopen the economy since growth in new coronavirus infections stabilized.

For instance, the Dow Jones Industrial Average climbed over 650 points, representing a 2.8% upswing. Meanwhile, the Nasdaq Composite and the S&P 500 jumped nearly 3.8% and 3%, respectively.

DOW, S&P500, and Nasdaq on TradingView
DJI, NDX, and SPX on TradingView

As earnings season kicks off and investors become more optimistic about the ongoing global pandemic, the U.S. stock market appears to be benefiting the most. Indeed, Amazon rose to hit a new all-time high of $2,292 shrugging off the losses incurred during Black Thursday.

“Financial markets have started to take a more positive view of the outlook. The initial improvement was mostly policy-driven, but the greater optimism of the past week seems to be at least partly related to the virus itself,” said Jan Hatzius, Chief Economist at Goldman Sachs.

Wall Street Gets Bullish
Word on the Street: buy

Despite the optimism seen in the U.S. the stock market, crypto enthusiasts remain fearful about what the future holds for Bitcoin.

Bitcoin’s Break-or-Make Point

Some of the most prominent figures in the cryptocurrency industry have recently warned investors about a further downturn that could see Bitcoin plunge to $3,000 or lower.

BitMEX founder Arthur Hayes, for example, explained that the bullish impulse seen across the U.S. stock market represents a dead cat bounce. The former institutional trader argued that sooner or later the sell off will continue, bleeding over into the crypto markets.

Along the same lines, Ross Ulbricht, an early Bitcoin adopter also known as “Dread Pirate Roberts,” stated that the flagship cryptocurrency is currently in the last wave of its first “cycle-degree bear market.” As a result, BTC could drop to even lower than $3,000 later this year should a downtrend drag into 2021.

Regardless of these pessimistic outlooks, Bitcoin sits at a pivotal point, from a technical perspective.

Bollinger bands are squeezing on the 4-hour chart. Squeezes are indicative of consolidation phases that are typically followed by periods of high volatility. The longer the squeeze, the higher the probability of a strong breakout.

Due to the inability to determine the direction of the breakout, the trading range between the lower  and upper Bollinger bands is a reasonable no-trade zone. These support and resistance levels sit at $6,650 and $7,080, respectively.

Bitcoin US dollar price chart
BTC/USD on TradingView

An increase in the selling pressure behind Bitcoin could allow it to break below the $6,650 support level. Such a bearish impulse would likely be followed by a spike in supply that pushes BTC down to the 61.8% Fibonacci retracement level at $6,100.

Breaking below this price hurdle will add credence to Hayes and Ulbricht’s outlooks.

Bitcoin US dollar price chart
BTC/USD on TradingView

Conversely, if volume starts picking up and the pioneer cryptocurrency is able to close above the $7,080 resistance level, it may jump back to $7,400 or even $8,400.

Overall Bitcoin Sentiment

The bullish momentum that the U.S. stock market is going through is quite intriguing due to the widespread transmission of coronavirus, rising unemployment rate, and the overall flight to safe haven assets. However, the stock market doesn’t appear to be feeling the pain.

The Federal Reserve commitmented to continue its asset purchasing program “in the amounts needed,” firing up the printers as needed. Given this morphine drip of cash, it’s possible the stock market may not feel the drastic effects of the situation until things reach a head.

While the Fed’s stimulus package seems to be pushing stocks higher, Josh Rager, a renowned analyst in the crypto community, explained that in the end Bitcoin will benefit the most.

“If the FED continues to pump the stock market, Bitcoin will surely follow behind. Not going to counter trade the FED. Still think pullbacks will come but the market has been strong. This is a long game and will last for months to come. Trade the market you are given,” he said.

The beginning of earnings season will soon provide real data about the economic impact of the ongoing global pandemic. If Bitcoin thrives through this period, then the cryptocurrency will prove itself as a hedge asset.

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