- Italy's constitutional crisis and fears of the nation leaving the euro-zone sent global stocks and the Euro tumbling.
- US bonds, gold and also cryptos gaining, with digital coins finally rebounding.
- There is a case to be made for a total coincidence and also for a correlation.
Italian bond yields suffered the most significant leap since the 90s, at the same time that George Soros "broke the Bank of England." The same Soros warned of a major and imminent financial crisis, listing Italy among other issues. Money fled out of Italy into the safety of German and US bonds. Stocks dropped as fears of an Italian exit of the euro-zone dubbed Italexit, or Italeave spread. There is no euro-zone without Italy. Inconclusive election results in March suddenly turned into a major global crisis.
At the same time, the prices of cryptocurrencies rose. Bitcoin (BTC/USD) jumped above $7,500, Ethereum (ETH/USD) reached a peak above $573, and Ripple (XRP/USD) briefly topped $0.60.
There is a good case why these movements are NOT correlated. We recently wrote how the price of all three cryptocurrencies might be ready to bottom out just as Goldman Sachs and JP Morgan are preparing to enter the market. That piece came out Friday and the digital assets continued suffering a bit longer before a rebound was seen.
In addition, at least in the case of Bitcoin, our technical expert Tomas Salles showed that buyers are increasing their intensity according to the Directional Movement Index. The picture is more complicated in other cryptocurrencies.
Here is how things looked like before the bounce, when buyers of Bitcoin began increasing their strength:
Another argument against the correlation between the action in stocks and cryptos is unrelated: the worst moments in Italian bonds and the Euro came between an hour or two before the crypto comeback. Later on, it became harder to draw the charts together.
Italeave and the Crypto climb are connected
To take the opposite side, we can begin with the latest point. First came the massive sell-off in Italian bonds, the Euro, and global stocks. And then came the rise in crypto coins. The money did not flow immediately, but the sequence is telling.
Another argument is about the nature of the crisis and the vision of cryptocurrencies. The Italian President rejected a government chosen by representatives elected by the people, in a modern, Western European country. Many see his move as the establishment or the elite defending itself against the freedom and free choice of the people. Or, as a puppet of external forces. This is a crisis of government.
Bitcoin and other cryptos represent a decentralized, democratized system which undermines the establishment. When the establishment is in crisis, alternatives are sought after.
Arguments can be made for both sides. These are still early days. As the crisis unfolds, we will examine the correlation and could reach more explicit conclusions.
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