It would be hard to avoid President Donald Trump tweeting about the economy and the stock market – there is even a Bloomberg counter to follow these tweets (here). Yet, for all the boasting on the stock market’s current bull run, there is a potential, Bitcoin-esque, stomach-twisting drop coming.
The adage, ‘what goes up must come down,’ is perfectly encapsulated in financial markets. It is more about controlling the lows after the highs. But if history is anything to go by, then the more prominent the high, the bigger the fall.
Currently, it is the longest stock market bull run in history. The previous longest one was in the 1920s, which was followed by the Great Depression. If it is a case of history repeating itself, then perhaps the notion that Bitcoin is in reverse correlation to the stock market may come as a relief for some.
A ‘Great Depression’-Magnitude Recession Looming?
In a tweet by Edan Yago, a breakdown of the last 120 years of stock market bull and bear runs was shown in order to point out a few things. Firstly, the great depression is well known and understood, but it is often forgotten that it followed on from an 8-year bull run – the longest in history before the current one.
In 2019, it is nearly 11 years into a bull run for the stock market, but the sentiment is that this run may be coming to an end, as there is the constant talk of a looming recession. Central banks across the world are trying to initiate policies, such as quantitative easing to stem it.
Just this week, it was announced that Germany had ‘opened the floodgates’ to negative interest rates for all savers after the banks started charging retail clients for their savings, starting with the very first euro in their accounts.
It is difficult to say that history will repeat itself in this instance; there were a couple of World Wars during the move to the second-largest bull run and the largest bear market in the early 20th century. However, the degree of the impending recession has been markedly high with an ‘everything bubble’ also entering the narrative.
A Bitcoin Reprieve?
Bitcoin’s emergence on the scene following the 2008 housing crisis has many people believing that there is a hedge against geopolitical tension, as well as market strife. When a trade war was threatening between the US and China, the price of Bitcoin spiked as many felt it could be a good hedge against this financial turmoil, it also seemed to be linked to a fall in the stock market.
In fact, there have been reports that suggest: “BTC had a nearly perfect negative correlation with the S&P 500, highlighting public interest in BTC as a hedge against global markets,” read the SFOX Crypto Market Volatility Report, in May 2019.
If there is this negative correlation, and the global markets are plunged into a Depression-level recession, Bitcoin’s role as a hedge may be cemented, and the price of the cryptocurrency could climb significantly.
Images are courtesy of Shutterstock, Twitter.