Back to normal: US macro events unlikely to completely derail Bitcoin price gains

As the U.S. stock market enters the earnings season, analysts explain how Bitcoin could work after the earnings and presidential elections.

Stock market indices where high-tech companies are listed, including the Nasdaq Composite and the S&P 500, have begun to recover. Amazon recorded high sales from the pandemic that caused profits to triple and reported a 37% peak in revenue. Facebook also exceeded Wall Street’s expectations, reaching $21.5 billion in revenue during the third quarter.

Although the correlation between Bitcoin and US stocks has diminished in recent weeks, the likelihood that increased risk sentiment in the marketplace could drive BTC remains high. As Kevin Svenson, a Kraken Cryptowatch chartist, explained, the market direction between Bitcoin and the S&P 500 is „the same 80% of the time“.

As such, Svenson hinted that that correlation would probably return:

„The only other week in 2020 with a lack of correlation was at the bottom of the global pandemic crash when #Bitcoin recovered before the S&P 500. We are talking strictly about market direction. Bullish or bearish trend“.

The US stock market has entered the earnings season, after weeks of stagnation. Historically the earnings season has been a net positive for stocks, acting as a short term catalyst. This could put Bitcoin (BTC) in a unique position as it has recovered throughout the month of October, despite the fall in US stocks. If risky assets begin to see some upward momentum, there is a possibility that it could positively affect BTC.

If Bitcoin begins to show some correlation to the S&P 500 again, then the season of positive earnings with strong Big Tech performance could further fuel Bitcoin’s momentum. However, there is some evidence to support the opposite.

Bitcoin will not be affected

Denis Vinokourov, head of research at the exchange and Bequant broker, told Cointelegraph that profits typically drive the US stock market, but the latest earnings season could have a small effect on overall market sentiment. He said the November 3 presidential election has become a more important macroeconomic factor, which could diminish the importance of earnings, he added:

„Markets are now in the middle of the third quarter and despite the global slowdown in the wake of the covid 19 pandemic, so far 85 per cent of companies have exceeded expectations by an average of 19 per cent, which is well above the historical average of three to five per cent. However, what markets tend to focus on is not only the data you see in the average headlines about profits, but also the guidance, which, given the limited visibility in the midst of the pandemic mentioned above, has been rather muted.“

Vinokourov also emphasized that Bitcoin Trend App could fall back in the short term, noting that if Bitcoin were to rise in October due to election uncertainty, then the post-election cycle could cause BTC to unravel. Since October 1, Bitcoin has risen from $10,775 to over $13,300, reaching a high of $13,859 on October 28.

A small phase of retreat or consolidation is also likely in the short term, as $13,875 has acted as a resistance area for several years since 2018. Vinokourov suggested that „If we stick to the narrative that uncertainty about the US elections was one of the main drivers of the rise, then by default the resolution should lead to relaxation and therefore some negative aspect“.

Guy Hirsch, managing director of the US region on the eToro trading platform, told Cointelegraph that he does not see the earnings season affecting Bitcoin in any significant way. Hirsch said the US stock market would not have a major impact on BTC:

„So far, the earnings season has been a net positive for the markets, with a significant number of companies outperforming estimates and likely limiting the overall risk of a massive sell-off, at least for the time being. That said, the correlation between Bitcoin and stocks has largely broken down in recent weeks and I can’t see how earnings could affect BTC in the near future.“

Another metric that points to a declining correlation between Bitcoin and US stocks is the „network-value-to-transactions“ or NVT, which assesses the price relationship in the Bitcoin network. The NVT price calculates the value of Bitcoin based on its market price and the amount of BTC transferred in the Blockchain on a daily basis. Bitcoin’s NVT price has also experienced a fall in correlation with the S&P 500, as reported by analyst Willy Woo.

A small setback could occur, but the momentum is too strong

Since reaching a peak of $13,859, Bitcoin’s price has fallen by about 4% in the last three days. The drop coincided with a decline in the inflows of stablecoins, indicating lower demand from buyers. In the same period, inflows of cryptomonies to exchanges increased, demonstrating the intention of retail investors and high potential net worth individual investors to sell.

Still, Hirsch stressed that he doesn’t believe a drop to $12,000 is likely, as Bitcoin’s „upward momentum“ is simply too strong, with fundamentals to support it. Bitcoin has seen unexpected price changes in the past, especially during bull markets. Volumes, open interest and general trading activity are all increasing, increasing the likelihood of short term volatility peaks. However, Hirsch said that Bitcoin’s current upward trend is different from previous cycles.

Last month, PayPal integrated the buying and selling of cryptosystems. This was followed by Bitcoin’s comparison to JPMorgan Chase’s gold, and Avanti, a bank focused on digital assets, was approved to be a banking institution. Given Bitcoin’s growing institutional adoption, the network’s high hash rate, and the increasing value of daily transactions on the Bitcoin Blockchain, Hirsch suggested that a major setback is unlikely in the short term, as „This recovery is different from the 2017 ICO rally,“ he added:

„If the COVID continues to rise and monetary stimuli falter following a contested US election, it would make sense for the adoption of Bitcoin to continue to increase (and therefore prices to rise) versus a scenario of massive BTC sales“.

Technically, Bitcoin’s higher term charts also show neutral market sentiment in the short term. The daily chart shows that BTC has been hovering above the 10-day moving average, despite the delay at the $13,876 ceiling. As long as the Bitcoin price remains stable above the key support levels of $12,700 and $13,000, the overall technical bullish trend at the BTC remains intact.