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As COVID-19 vaccine trials fail, US stocks open high then drop, Bitcoin surges, cutting ties

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As COVID-19 vaccine trials fail, US stocks open high then drop, Bitcoin surges, cutting ties

Since March, the COVID-19 pandemic has had a significant impact on the global investment market, causing Bitcoin to show a high correlation with the U.S. stock market. However, recently, the two different markets have started moving in opposite directions. With the failed drug trial for COVID-19 in Wuhan, the short-term correlation between Bitcoin and U.S. stocks was disrupted on Thursday.

Disconnection Between Bitcoin and US Stocks

Many investors are hoping for positive news on the COVID-19 vaccine to trigger a V-shaped recovery in the global economy. However, the UK's Financial Times reported on leaked information from the World Health Organization revealing that Gilead Sciences' test of the Remdesivir drug for the COVID-19 vaccine had failed. Following the failed drug test, the Dow Jones Industrial Average opened higher but later reversed, retracting a 400-point gain to close up only 0.2% on Thursday. The S&P 500 and Nasdaq Composite also fell by 0.1% and 0.75%, respectively.

So far, the US stock market seems to rely on government relief packages to avoid collapse. Similarly, Bitcoin rebounded after the Federal Reserve announced trillions of dollars in economic stimulus for the US. Despite being touted by industry players for years as a safe-haven asset for value storage, the recent correlation between Bitcoin and US stocks suggests that Bitcoin is more of a risk asset. However, this correlation seems to be gradually decoupling.

In contrast to US stocks, Bitcoin showed a significant rebound against the US dollar last night, with a sudden surge in volume and breaking through key resistance levels, demonstrating its function as a hedge asset. Global macro trader Joel Kruger released an interesting animation showing how Bitcoin is developing in sync with the safe-haven gold amid declines in other traditional assets.

Bitcoin in Transition as a Safe-Haven Asset

Bloomberg analyst Mike McGlone, in his research, pointed out that both Bitcoin and gold are in a strong bull market phase, benefiting from central banks' relief efforts.

"In our view, this year will confirm Bitcoin's transition from a speculative risk asset to the crypto market's version of gold."

On the other hand, Bitcoin will undergo its third halving event in May 2020. Many analysts believe that the reduction in supply will further drive up the price of Bitcoin. Some even predict that by 2021, the price of Bitcoin could reach $100,000.

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  • Bitcoin's Correlation with S&P 500 Reaches All-Time High

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