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2 Reasons a Deeper Correction in Stocks May End Bitcoin’s Rally to $8K

The Bitcoin price (BTC) rallied to roughly $7,300 on April 3, and BTC is still holding on the $6,700 service level, meaning that the price could push the dominant cryptocurrency to the $8,000 area. But a highly precise hedge fund manager’s stock market warning could rattle the cryptocurrency market in the short-term.

Dan Niles, the founding partner of Alpha One Capital Partners, said in a note to clients the dire financial outcome of the coronavirus pandemic could lead to a steeper correction in the U.S. stock market.

With Q2 earnings set to be printed in the coming months, jobless claims exceeding 10 million, and significant European economics in free fall, the requirement for high-risk resources that have single stocks and crypto assets could evaporate once again.

Fakeout rallies have occurred frequently in 2020

As Cointelegraph previously reported, notable dealer PentarhUdi predicted the Bitcoin price to recover from $5,200 to the 200-week simple moving average (SMA) at $8,500 before it eventually melts to the $3,000 area.

The routine of a strong rally leading directly to an intense selloff has seen multiple times in yesteryear 12 months. This is the result of Bitcoin’s cost suddenly plummet in a short period of time and vibration out late shorters in the market. This provides whales time to fix their positions, often resulting in to a extreme correction afterward.

Since late March, the Bitcoin price has broken from its correlation with the U.S. stock market. Previously, BTC closely followed the movement in the U.S. stock market, going up to reacting to pre-market trading of the Dow Jones Industrial Average.

Therefore, even if the cost of Bitcoin sees a large upside movement to the $7,700 to $8,500 range in that the short duration, the price remains vulnerable to a pullback to the $3,000 to $5,000 area.

BTC USDT daily chart. Source: TradingView

BTC USDT daily chart. Source: TradingView

Bitcoin’s V-shape recovery makes it vulnerable

The March 12 collapse to $3,750 could have caused the Bitcoin price to flash crash to zero according to a few company executives. Fortunately for investors, the cost impressively rebounded from $3,600 to $6,700 with barely any pullback apart from a brief wick down to $4,400.

The stock market also demonstrated a corresponding V-shape recovery as Bitcoin, prompting renowned strategists to prediction a deeper correction in the forthcoming months.

Niles said about the stock market:

“I kind of laugh when I hear people talking about a V-shaped recovery because we are going to have 10 unemployment, my figure is nearer to 20 before all this is said and done.”

Liquidated longs remain a threat

Exactly the same argument for its lack of strength a V-shaped recovery in the equities market could be implemented with Bitcoin. Given that the cryptocurrency has not established strong support amounts throughout its healing to the $6,700 to $7,300 range, it faces a threat of a March 12-esque collapse where a considerable amount of extended contracts are liquidated in a short period of time.

A long accumulation phase, in contrast to a V-shape recovery, allows spot volume to grow and actual retail investors to purchase in the current marketplace, as opposed to highly-leveraged futures orders affecting the short-term price trend of BTC.

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