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- Bitcoin eyes a new price rally as investors assess the provisional reopening steps taken by the U.S. states.
- Analysts believe a restrained second wave of Covid-19 infections could increase risk sentiment.
- There is now around $2.3 trillion sitting in money market funds and banks to reenter markets.
Bitcoin’s growing correlation with the U.S. equities could lead its spot price further higher, according to a suggestive analysis.
Analysts at Unigestion said in a note that investors are holding $2.3 trillion worth of cash and cash-based securities on the sidelines. The U.S. money market funds, for instance, have attracted an inflow of $1.1 trillion during the coronavirus pandemic. Meanwhile, bank deposits have shot up to $1.2 trillion since stocks crashed in February.
The Swiss investment management firm tracked hedge fund strategies to realize that they find risk-on assets attractive at their lower positionings. It further noted that declines in the U.S. equities’ realized and implied volatility could lead institutional investors in favor of holding riskier assets.
“This mountain of cash could be invested in the short term if the Covid-19 curve continues to decline,” Unigestion told FT.
Bitcoin Could Benefit From Economy Reopening
Unigestion’s assessment surfaced after Bitcoin, and the Wall Street index closed higher in sync amid cautious reopening of economies across the world. While the cryptocurrency surged 1.58 percent, the U.S. benchmark S&P 500 index climbed 0.9 percent.
Analysts noted that easing lockdown policies could bring economies back in business, which would lead up to higher, if not the best, corporate earnings in the second quarter. Helped further by accommodating central bank policies, U.S. firms have scope to give back employment opportunities, long after witnessing a stunning rise in joblessness (over 20 billion).
US labor data | Source: Vox
Under that scenario, investors can take a portion of their cash holdings to invest it across the risk markets.
Bitcoin could benefit as well, owing to its long-term bullish scenario post halving. Meanwhile, the cryptocurrency has tailed the gains and losses in the S&P 500 with a record positive correlation. And given the fears of the second wave of coronavirus, both retail and institutional investors could hold it for its short-term, higher risk-reward profile.
Downside Sentiment Persists
Market sentiment is very volatile. As such, the trajectory of global markets will depend on how the coronavirus pandemic fares after reopening economies tentatively. A medium-term loss of economic activity would end up reducing demand for all the unnecessary assets, even Bitcoin.
The massive injection of money by central banks can only delay a bear market. Should this bear market continue longer than it has, investors will dump their BTC and stock positions to seek shelter in cash, once again.
As BitMEX’s CEO wrote in a recent newsletter:
“Bitcoin will be owned unlevered. Could the price retest $3,000? Absolutely. As the SPX rolls over and tests 2,000 expect all asset classes to puke again.”
Photo by Sharon McCutcheon on Unsplash