The progress reported by Pfizer toward developing a vaccine could portend a faster-than-expected recovery in the global economy. A rebound in consumer demand would bring about faster growth in corporate earnings and thus improve prospects for stocks.
But nothing is simple in the art of pinpointing fickle and topsy-turvy market narratives, especially during a year when the hand of governments and central banks has been particularly heavy, in the form of trillions of dollars of fiscal and monetary stimulus they’ve pumped into the financial system.
“Assuming the Pfizer vaccine is as effective as currently indicated, it will take several months to manufacture and inoculate large segments of the population,” wrote Thomas Perfumo, strategy director at Kraken Intelligence, an analysis unit of the similarly named cryptocurrency exchange. “The key question is whether additional fiscal stimulus is on the horizon and how asset values, including bitcoin, continue to digest the swell in unprecedented fiscal and monetary response.”
Of course the 11-year-old bitcoin has defied market prognosticators for most of its history, and some cryptocurrency traders say the daily price movements represent little more than a statistical random walk, or maybe correlation without causation. Bitcoin has blown away every other major asset class in 2020, with a 113% year-to-date gain versus 10% for stocks and 24% for gold.
Bitcoin’s price correlation over the past 90 days with both stocks and gold stands at a positive but weak level of 0.35, where 1 represents perfect synchronicity, -1 a perfectly inverse relationship, and 0 no connection at all.
It might also be weak to draw too many inferences beyond just: The bitcoin bet appears to be winning.
Bitcoin (BTC) has chalked up a stellar price rally in the past two months, reaching 33-month highs close to $16,000.
The uptrend began in early September after buyers bought a dip below $10,000, and gathered pace in the second half of October. Last week, prices reached a high of $15,971, a level last seen in January 2018. That’s a 63% price gain in eight weeks, according to CoinDesk’s Bitcoin Price Index.
Over 2018 and 2019, bitcoin often languished below $10,000, struggling to recover from a crash that followed the late 2017 surge to record highs near $20,000.
So what’s behind the rapid gains in recent weeks? Here are three of the primary factors driving the bull market:
Increased institutional participation: “Over the past eight weeks, we have seen various notable public companies and hedge funds enter the cryptocurrency market with sizable deployment of capital,” Matthew Dibb, co-founder, and COO of Singapore-based Stack Funds said.
Supply crunch: “Between Grayscale’s GBTC trust, MicroStrategy and the influx of other large spot buyers, the supply of bitcoin is beginning to look more scarce,” Dibb said. Grayscale is owned by CoinDesk’s parent firm, Digital Currency Group.
Technical breakout: Bitcoin’s bullish bias strengthened following the cryptocurrency’s convincing break above $12,500 in the third week of October.