According to Morgan Stanley, Bitcoin has been a fairly accurate leading indicator for stocks.
At least over the past couple months.
Before that, there was literally almost no correlation between the two.
However, if you want to know where the stock market goes next, watch Bitcoin says Michael Williams of Morgan Stanley.
What is Morgan Stanley saying exactly?
According to Morgan Stanley Bitcoin has been leading the stock market over the past two months.
"We continue to think the price of bitcoin is worth watching as another signal of animal spirits."
“Remarkably, since the peak in P/Es and bitcoin on the exact same day, December 18th, they have traded very closely together."
Check out the chart of that below:
(Source: https://finance.yahoo.com/news/want-know-stocks-go-next-watch-bitcoin-142204335.html)
Though they think this current correlation may not last for the longer term, it seems here to stay for the time being:
“While we do not expect this relationship to continue to hold so tightly we do think it will be hard for P/Es to move significantly higher or lower without a commensurate move in the digital currency.”
This likely also has something to do with easy money policies not being quite so easy anymore.
When interest rates were low, money was looking for alternative investments in order to earn some kind of a return.
In that kind of environment, assets deemed as "risky" tend to get bid up.
Now that interest rates are going up, and are being signaled to go up several more times this year, some money will be looking more towards traditional investments in order to see a return.
That doesn't mean that bitcoin can't go up in a tightening monetary environment, but it does mean there likely won't be as much froth in the rest of the cryptocurrency markets.
More about the report form Morgan Stanley can be found here:
https://finance.yahoo.com/news/want-know-stocks-go-next-watch-bitcoin-142204335.html
Stay informed my friends.
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