Over the last few days, the prices of cryptocurrencies have been outperforming the stock market, leading many to believe that the bear market could be over, and that there will be further price rises on the horizon.
For those who wish to allocate to “risk on” assets, an environment such as this, when many believe that the Federal Reserve may finally cease their incessant rate hikes, could be extremely fortuitous for holders of cryptocurrency – Big Tech stocks are less risky than cryptocurrencies, but can come with far larger gains over the longer term.
With lower market caps comes higher volatility
Cryptocurrencies are, by and large still far smaller in terms of market cap than many tech stocks, especially the largest of the tech stocks.
Bitcoin’s market cap currently stands at just under $400 billion, compared with Apple’s $2.4 trillion.
It is only rational that during bullish periods smaller companies and cryptocurrencies perform better than those which are larger, since the reduced levels of liquidity mean that less buying pressure is required to dramatically increase prices.
Conversely, when bearish times set in, smaller projects perform far worse in terms of price.
The crypto bear market could be over
There are many analysts who have been speculating that the bear market could be over, or almost over.
One day you wake up and see #bitcoin at $21K, without any important news or event. The next week BTC $24K .. and $30K. Some will say it’s a bull trap, others realize the bear market is over and the next bull market has started. pic.twitter.com/otJGOo4F1S
— PlanB (@100trillionUSD) October 25, 2022
Now that it has been approximately a year since the peak of the bull market, and prices of major cryptocurrencies have fallen by over 70%, with smaller caps falling by over 90%, it seems that sellers may be reaching a point where they are almost exhausted, and opportunistic buyers are surveying the market with far more interest.
Elon’s recent acquisition of Twitter has given a huge boost to some altcoins, particularly to meme-themed projects like DOGE.
Bitcoin’s adoption has continued to grow, with the capacity of the Lightning Network breaking all time highs, the hash rate breaking all time highs, and nation states around the world are becoming more supportive of the asset as class and drafting more and more favourable regulation, with more companies integrating cryptocurrencies all the time.
Miner capitulation is one of the key indicators that the Bitcoin bear market could be reaching its close. The rising hash rate has meant that the Bitcoin network is safer than ever, but it has also meant that miners are finding it harder to turn a profit.
When miners struggle to turn a profit, as happened during the depths of the last two bear markets, they are forced to turn of their machines as it becomes unprofitable – this could mark the absolute bottom of the markets, and given that many of the largest miners in the market have announced over the course of the last few days that they are going bankrupt, this could well be on the horizon in the short term.
Will the trend of crypto outperforming Big Tech last?
This trend has only been the case over the last few days, and thus ought to only have been relevant for extremely short-term traders.
Over the longer term, Bitcoin has consistently outperformed the stock market and there is no signs that this trend ought to be abating.
Given that the crypto markets are far more responsive to bullish news in a bull market than Big Tech, it could well be that a recommencement of a bull market will mean that Bitcoin once again outperforms the Nasdaq.
The question as to when this will happen largely depends on the decisions of central banks, particularly the decisions of the Federal Reserve. If the Federal Reserve choose to lower rates, or even to halt their further rate rises, the level of quantitative easing in the system could mean that the sustained Cantillon Effect helps asset prices and creates a perfect “risk on” environment.
By contrast, if the Federal Reserve chooses to continue to raise rates, the dollar may strengthen even further, which will be problematic, and asset prices could see further downside.