Bitcoin’s brief bounce
Over this last week, especially these past two days, the topic on everyone’s minds, traders included, is the situation in Eastern Europe so much, so I don’t even have to name the countries involved for the readers to know what I am referring to.
The tensions on the border between Ukraine and Russia had brought about strong risk-off sentiment in the broader markets over the past two weeks. We saw major indexes decline. For instance, the S&P lost 9% between February 10th and February 24th. At the same time, Bitcoin was down by over 15% as its correlation to the equities markets has strengthened significantly in step with the risk-off sentiment.
This created a robust demand for safe-haven assets such as the U.S. dollar and gold. In the two weeks starting on February 10th, these traditional havens rose in tandem despite gold’s value being determined by its worth against the U.S. dollar. In the same 14 days, the dollar index gained 2.26%, while gold futures increased in value by 5.64%.
Today traders witnessed a reversal of the prevalent trend brought on by Russian — Ukraine apprehensions. The turnaround in the markets that took place on Friday is perplexing, to say the least, as it was predicated on the growing possibility of a Russian invasion of Ukraine. Early Thursday morning, the fears were realized when President Putin gave orders to do just that and effectively perform a land grab of an area of Eastern Ukraine.
Opposed to the anticipated outcome, the invasion seemed to have reignited risk-on sentiment, causing Cryptocurrencies and major indices to rise today. Since hitting their perspective lows yesterday, the S&P 500 shot up swiftly and traded 5% off their intraday lows yesterday. Bitcoin did the same, actually pivoting about 16 hours before the S&P and outpacing it, gaining 11.70% from its intraday bottom yesterday.
The correlation between the risk-on assets (BTC, S&P) is nothing new. In fact, recently synchronicity has strengthened significantly. The parallel between Bitcoin and the stock market has been growing since the last half of 2021 and this week the relationship (60-day correlation) officially has reached its highest point on record.
What is perplexing is not the BTC and S&P tandem moves, nor the tandem moves in the dollar index and gold. Both pairs belong to the same class of assets as far as I’m concerned and there are circumstances in which GLD and the USD will move in sync despite gold’s evaluation being derived from its strength against the U.S. dollar. What didn’t make sense was where this risk-on sentiment was coming from in the midst of ongoing conflicts that have the potential to bring about a world war?
What doesn’t compute is the timing of this current reversal and shift from havens back to riskier assets. Seeing as the flight to safe havens was predicated on the possibility of a Russian invasion, that theme strengthened over the past few weeks as the tension seemed more likely to evolve into military action. The fact that trader’s worry came into fruition came as a surprise to a lot of people who thought Russia was simply posturing in order to bend NATO’s arm with the goal of a commitment from NATO that Ukraine would not be admitted to the North Atlantic Treaty Organization. Many people and politicians believed that Russia would not enter a full-scale invasion believing that it would ignite a bloody conflict between Europe’s East and West, bringing with it loss of life on both sides not seen since World War 2. No one thought NATO would bend to Russian threats and bar a sovereign nation from joining the alliance. I suspect even fewer people thought that Russia would pull off a non-diplomatic land grab, in effect assuring that Ukraine would never join NATO, but more disturbingly that they would in essence, lose their sovereignty altogether. Any way Putin spins it, what he did was in step with Nazi Germany borrowing the exact tactics Adolph Hitler implemented in the expansion of Nazi Germany.
Russian regime and the Third Reich
Hitler’s first land grab was on March 7th, 1936, when his troops occupied the Rhineland. His reason was the same as it was for his next invasion, that there were German-speaking people in that territory and therefore, they were being held against their will in a land that should belong to Germany based on their ethnic makeup. This is exactly the claims made by Vladimir Putin as to occupying Ukraine.
The similarities go even further. Not only is the redirect identical but so are the steps and tactics used to get what he wants. For example, the second Nazi land grab occurred in two stages. First, in October 1938, Germany occupied the Sudetenland a region of Czechoslovakia that had most people who identified as German. Czechoslovakia attempted to appease Germany by implementing a pro-German foreign policy only asking to remain autonomous. Identical to the claims from Russia that they only desire that Russians living within the borders of Ukraine to be treated fairly claiming discrimination is prevalent even genocide of their people and that they have no desire to topple Ukraine.
After doing everything asked by Hitler, the Nazis overthrew Czechoslovakia anyway, five months after occupying the small portion in the Sudetenland. History tends to repeat the same cycles, just as markets do. Three days ago, I along with most people had little idea of what Russia’s true intentions were. After this quick trip down a dark alley of memory lane the intentions seem much more clear and more sinister.
Trading has once again opened overseas and the markets are moving again in a way that makes sense with the dollar index and gold shooting higher since opening Monday morning in Asia, with Bitcoin and the S&P dropping lower.
In this time of global conflict, we can expect this to continue until it gets resolved which could be timely or bloody and possibly both. For that reason, I expect Bitcoin to continue to move lower. However, Bitcoin is attempting to hold on to support at the 78% retracement residing at $37,500. This support level cannot hold if the global narrative remains the same, the next level of support is at $35,000 and below that are the lows hit in June at $28,000.
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