Author: YASHU GOLA
Translator: Nian Yin Si Tang
According to Vlad Antonov, a researcher at data analysis services company Santiment, the growing positive correlation between Bitcoin and the stock market may cause trouble for the former.
In a report published on Wednesday, the researcher stated that if the stock market continues to influence Bitcoin, he expects Bitcoin to fall sharply. He reviewed some recent related situations. Bitcoin and the S&P 500 index have risen simultaneously in some events that have caused market volatility, including the recent successful COVID-19 vaccine trial and the US election.
Bitcoin and S&P 500 index correlation. Source: BTCUSD on TradingView.com
It’s just that compared with other mainstream currencies, Bitcoin has rebounded too fast. So far in the fourth quarter, Bitcoin has risen by 71.5%. On the other hand, the S&P 500 index rose by only 7.32% during the same period.
Bitcoin DAA-Price divergence
Antonov pointed out that the enthusiasm for Bitcoin on social media is quite high. After well-known companies and individuals purchased cryptocurrencies or started to provide services to existing customers (i.e. PayPal), buying sentiment in the retail market soared.
However, there is a measure that puts this advantage at risk of exhaustion. Antonov claims that there is a “worrisome divergence” between Bitcoin prices and their daily active addresses.
Bitcoin daily active addresses deviate from the price. Source: Santiment
The above chart shows that since October 2020, the divergence of DAA-Price is still in the bearish zone. But contrary to this indicator, the price of Bitcoin is moving towards the current record high of $20,000. This further exacerbated the divergence and strengthened the market’s bearish tendency.
“If the stock market undergoes a correction from November to January, I expect Bitcoin to experience a 25%-35% correction,” Antonov wrote, “based on the lack of daily active addresses on the Bitcoin network and the highly bearish DAA- Price deviates from the indicator and I came to this conclusion.”
Mediocre social emotions
Antonov also compared the current social volume of the Bitcoin market with previous ups and downs. He pointed out that Bitcoin is attracting public attention, but it is still not as high as in March, May and August.
Bitcoin weighted social sentiment vs. price. Source: Santiment
However, this put Bitcoin in a conflict zone. Despite the mediocre social volume, this cryptocurrency once rose to $18,500. During the downward correction, Bitcoin also managed to hold the key support zone. Antonov said that analysts can interpret this as an overall positive signal.
“In terms of weighted social sentiment, the overall trend of (Bitcoin) is bullish.” He added, “However, compared with the beginning of the bull market when Bitcoin rose from US$11,000 to US$16,000, the relevant social sentiment has already Significant decline. The level of bullishness does not seem to be enough to push its price up again by 50-100% in the short term.”
