Bitcoin’s connection to traditional markets make it vulnerable

Bitcoin’s connection to traditional markets is noticeably higher as the interest of various investment funds expands. This was clearly seen in the dynamics of bitcoin in March last year when it crashed down along with the general markets.

So, if we see another round of Taper Tantrum, which caused turbulence in the markets in 2013, this will have a negative impact on bitcoin and the crypto market with its inherently stronger movements compared to blue-chip stocks.

However, it is unlikely that a rollback from the Fed is something to be seriously feared for the time being. Despite possible signs of displeasure with Powell’s bloated equity capitalisation, a withdrawal of support for the markets would almost certainly be a shock to the economy, ensuring a second recession.

What is worse, is that if government bond purchases are curtailed, yields could quickly spiral out of control as the largest of long-term buyers leave the market. Thus, fears of a rollback are nothing more than concerns about a new extreme bad scenario. So far, neither the Fed nor Powell has been seen to create black swans.

The FxPro Analyst Team