- According to Lark Davis, the Bitcoin market is being dragged down by the US equity market.
- Davis also explained that people are currently selling because they are afraid of what the Central Bank is doing.
Lark Davis, a crypto analyst, and YouTuber has in a recent video explained the situation that seems to have held the Bitcoin market down from breaking key resistance points.
The equity market influence
According to him, the Bitcoin market is being dragged down by the US equity market. There has been a strong correlation between S&P 500 and Bitcoin. Per recent price data, S&P 500 is about 7 percent down from Its all-time high, while Bitcoin is 40 percent down from its all-time high.
As long as the equity market is hit by factors that negatively affect its value, the Bitcoin market will respond to the impact in the same trend. This is because of the Bitcoin Exchange-Traded Funds (Bitcoin ETF), institutional involvement, and others. Institutional investors usually make decisions based on the performance of the equity market, and once it looks shaky, they exit from the Bitcoin market.
Bitcoin and the FED
Davis also explained that people are currently selling because they are afraid of what the Central Bank is doing. The Federal Reserve is expected to raise the interest rate by probably three times (from 0.25 to 1 percent). This will still be a negative real rate accounting for inflation if it remains at a similar level to what it is right now. He further explained that inflation outpacing interest rate, and the coming tapering process has caused panic in the market.
According to the current CEO of Galaxy Investment Partners, Mike Novogratz, Bitcoin is running into some buying support.
Russell index broke major support, and today’s rollover confirmed it is broken. This is now a bear market. There are 1.2 trillion of bad equity longs above the market.
He added that crypto is going to find a hard time rallying until stocks find the base.
That said, crypto already had a decent sell-off and is running into some buying support. Davis believes that this market trend is a repeat of the mid-2021.
There is a lot of media Fear, Uncertainty, and Doubt (FUD), bans, and crackdowns. The FED FUD is the new China FUD. According to him, the fear level is high, and everyone is expecting a 90 percent drop.
The big picture
Despite the current market situation, Davis says he is not worried about the market, but consistently taking profits.
I’m going to be okay if we hit a massive bear market. I hope that most of you are going to be okay too.
Also, there is a massive generational wealth transfer coming into play. According to him, traditional portfolios have 40 percent bonds and 60 percent stocks, while millennial portfolios have 40 percent Bitcoin and 60 percent stocks. There is a flood of liquidity coming into the digital asset ecosystem in search of yield and returns.
Davis mentioned that though Bitcoin is extremely volatile, it comes with a good return over time compared to bonds.
Bonds are a joke. Buying and holding Bitcoin is a safer bet than buying and holding bonds, and cash.
It is interesting to note that crypto users nearly tripled in 2021 from 100 million to 300 million. With similar growth, crypto users will be near 1 billion by the end of the year.