Analysis

Bitcoin drops 20% as markets turn risk off

Bitcoin drops 20% before rebounding a bit.

Risk FX, equities all lower.

Nikkei 2.36% Dax -0.41%.

UST 10Y 1.10.

Oil $51.7.

Gold $1848/oz.

BTCUSD $30949/oz.

Asia and the EU

AUD Retail Sales

North America Open

No Data

Markets started the week with a decidedly risk off tone with both stock index futures and risk FX lower on the day, but the biggest loser by far was bitcoin which dropped nearly 20% at one point before rebounding.

The weekend gyrations in bitcoin took it down to the $30,000 level after the crypto asset hit a high of $42.000 just last week. The move was hardly surprising given the parabolic nature of the rise but correction may not last long as the new wave of investors will be emboldened to buy the dip especially if bitcoin drops back into the $20,000 range. Bitcoin’s wild swings have taught investors that volatility is just part of the asset and downside move will have to be far more severe that even this weekend’s sharp drop in order to shake the confidence of HODLers.

Meanwhile the price action in FX and equities was far more sedate, but clearly profit taking flows dominated as market tone turned more cautious. There are certainly a plethora of reasons for investors to be more wary. From the possible impeachment fallout of the failed coup attempt in the US, to the heightened infection rates of the new strain of the COVID virus, to the possible geopolitical flashpoint of US and China over Taiwan the bears have their choice of pickings to drive prices lower.

In forex, cable may be especially vulnerable as the pair slipped below the 1.3500 level today with the COVID raging through the populace while new Brexit rules have put a strain on the supply lines leaving supermarkets shelves empty. The new strain of COVID is ravaging the UK healthcare system with some parts of London now seeing 1 out of 20 people infected. It may take a month or more to stabilize the situation and in the meantime sterling is certainly vulnerable to post Brexit deal selloff.

In equities, investors are torn between the prospect of large stimulus given the Dems control of both legislative branches of government and the near term political turmoil that surrounds Washington DC. Meanwhile the near vertical rally of the past few weeks has left valuations stretched with TSLA especially vulnerable to bitcoin like sell-off. If equities hold firm however, the would be a very bullish sign that markets are looking part the circus like atmosphere in DC, but at this point they are vulnerable to a pull back especially if Donald Trump attempt any further illegal maneuvers to stay in office.

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