Downwards Bitcoin Volatility Possibly Approaching

Possible Market Storm Approaching
IMF Warns of Equity Market Crash
Tokenized Etfs Incoming

Once again, thanks for joining us for our weekly edition of Overbit Insights. At the time of writing, several uncertainties lie ahead in the markets: fiscal stimulus across the world, especially in the US; recent reports that the Brexit negotiations have completely stalled as a result of missing PM Boris Johnson’s deadline; the US Presidential election just a few weeks ahead; and as always, the ever-hanging cloud of the coronavirus pandemic. All of this uncertainty makes our job very hard, as many of these events will lead to unpredictable outcomes in all markets. That being said, we will try to layout the macro picture in this week’s edition, rather than attempt to be fortune-tellers.

This aforementioned uncertainty brings us into our first story of the day: a potential ‘mini-meltdown’ for Bitcoin and cryptocurrency markets, as reported by the financial magazine SeekingAlpha. If you’ve read our recent issues, we’ve spoken at lengths about the gearing-up of Bitcoin and crypto towards a potential new bull market cycle. It’s always important to consider both angles, though, which is precisely why we’re bringing attention to such a report.

According to SeekingAlpha, all of the uncertainties above mean one thing: impending volatility. The author goes on to point to the correlation between the stock market and Bitcoin, which has mostly moved in tandem since late February. As you probably remember from our own reports, we’ve also pointed to the close correlation between Bitcoin and the US dollar. Both of these correlated markets have been relatively stable the last few weeks & months, but with so many catalysts on the horizon, it’s safe to say we are due for a massive move in all markets – Bitcoin included. Depending on how they turn out, some of these catalysts could undoubtedly bring the cryptocurrency markets upward. They could just as quickly bring it downwards, however. That being said, it would be a wise decision to avoid going ‘all-in’ on any market at this point. There are just too many events on the horizon that make the markets near-impossible to predict at this time, at least in the short-term. We remain bullish on Bitcoin in the long-term, of course, but the safer play in the short-term would be to let everything shake out over these next few weeks before making any large bets.

Our second story of the day reinforces this idea of impending volatility. According to a recent release by the International Monetary Fund (IMF), we could see a worldwide crash in equity markets if the pandemic continues to run its course. “A disconnect persists, for example, between financial markets — where there have been rising stock market valuations (despite the recent repricing) — and the weak economic activity and uncertain outlook,” Tobias Adrian, the IMF’s director of the monetary and capital markets department, succinctly said in a blog post on Tuesday, 13 October.

This disconnect does not take a market analyst to discern; it’s been clear that markets have risen for the most part in 2020 whilst the economic situation for everyday people has worsened. Tobias Adrian continued, not mincing words – “There is a risk of a sharp adjustment in asset prices or periodic bouts of volatility,” he said. Considering how intertwined the global markets are, a crash in the equity markets would trigger reactions across the board, from forex to cryptocurrency and everything in between. Once again, it seems clear to us the best financial move right now would be risk-off.

In light of some of these pessimistic outlooks, we’d like to end today’s edition with a sign of encouragement. In a recent report by the Financial Times, it seems this optimism on cryptocurrency is even spilling over into the US Securities and Exchange Commission. As we’re starting to see from the head of the SEC, Mr Clayton said “the tokenization of ETFs,” is coming and “We should drive that, and we’re willing to drive that.”

Markets fluctuate between up and down, but one constant remains – the driving force of human innovation. This constant is why we at remain bullish on the future of technological breakthroughs like Bitcoin and cryptocurrency. Developments like this with the SEC underpin our bullish bias and help us look past any short-term volatility that may be on the horizon.

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