The correlation between Bitcoin and the US stock market has always been high, but in the past two days, a divergence has occurred again.
The correlation between Bitcoin and the US stock market has always been high. However, in the past two days, a divergence has occurred again. On October 10, US stocks closed higher, with the Dow Jones and S&P 500 indices both hitting record highs. Against the backdrop of US stocks reaching new highs, Bitcoin has seen a continuous decline. What is the reason behind this?
The global financial market is like a pool of water; wherever there is a profit-making effect, it will become a gathering place for capital. There are clear signs of capital fleeing the crypto market to the A-share market. Recently, a wave of wealth-making in the A-share market has swept the globe. On October 8, the trading volume of the Shanghai and Shenzhen stock exchanges broke 3 trillion yuan for the first time in history, reaching 3.45 trillion yuan, a significant increase of over 800 billion yuan compared to September 30. Almost all sectors rose, with brokers and semiconductors experiencing a collective surge. The market saw a broad upward trend, with 5,029 stocks rising, 791 stocks hitting the daily limit, and 291 stocks declining. Even more rarely, on that morning, hundreds of broad-based ETFs hit their daily limit, while ETF market transactions expanded.
The latest weekly data from global capital flow monitoring agency EPFR shows that as of the week ending October 2, emerging market equity funds tracked by EPFR recorded the second-largest weekly inflow of funds this year, marking the 18th consecutive week of net inflows, with almost all of these funds flowing into the Chinese market. David Skarica, a senior strategist at Gain Capital, told reporters that the flow of funds is always crucial, and currently, global investors still have relatively light positions in the Chinese stock market. He cited Goldman Sachs channel data, stating that although hedge funds have rapidly increased their exposure to the Chinese market recently, it is still at the 55th percentile of the five-year range, while this figure reached the 91st percentile in January 2023. This also means that sudden market changes may lead to foreign capital continuing to increase its allocation to the Chinese stock market.
In addition to the continuous inflow of funds, positive policies have also been consistently introduced in China. Most people in the A-share market believe this will lead to an unprecedented bull market. In addition to the two structural monetary policy tools established by the central bank, to implement the new "Nine National Policies," on September 24, the China Securities Regulatory Commission issued "Opinions on Deepening the Reform of the Mergers and Acquisitions Market for Listed Companies," further stimulating the vitality of the mergers and acquisitions market and supporting listed companies in injecting quality assets to enhance investment value; the "Guidelines for the Supervision of Listed Companies No. 10 - Market Value Management (Draft for Comments)" was publicly solicited for opinions, requiring listed companies to enhance their quality as a basis for promoting the increase in investment value. Furthermore, on September 26, the Central Financial Office and the China Securities Regulatory Commission jointly issued "Guiding Opinions on Promoting Long-term Capital into the Market," aiming to unblock the barriers for social security, insurance, and wealth management funds to enter the market and strive to boost the capital market.
Currently, the A-share market is seen as an investment haven in the global financial market, showing clear signs of capital inflow, which has also led to noticeable capital flight from the crypto market. This is specifically reflected in the continuous negative premium of USDT and the outflow of Bitcoin ETF funds. However, with the recent surge in A-shares, the market is experiencing a correction, and it is expected that A-shares will need to undergo a period of adjustment, which may slow the outflow of capital from the crypto market. Nevertheless, considering the currently low valuation of A-shares, it cannot be ruled out that capital may further flee from the crypto market or reduce investments in crypto assets, which would undoubtedly be detrimental to Bitcoin's rise.
Since June this year, a major wave of selling in Bitcoin has come from the German government, the US government, and the sequential selling pressure from Mt. Gox compensation. Recently, expectations of selling pressure from the US government may also become a potential factor weighing on Bitcoin. According to Lookonchain, the US government seems to be free to sell 69,370 Bitcoins seized from Silk Road. On October 7, the US Supreme Court refused to hear the case regarding the ownership of the 69,370 BTC (approximately $4.33 billion) seized from Silk Road, allowing the government to have complete control over the seized funds.
The author believes that the Biden administration may not be very friendly towards the crypto market, and the US government seems likely to sell. The last time the US government sold was two months ago when it moved 29,800 BTC