Suddenly bitcoin looks more steady than many stocks

Historically famed for its volatility, bitcoin (BTC) suddenly appears to be a beacon of calm when compared with many marquee stocks that have taken a hammering in recent weeks.

In rand terms, BTC is slightly up over the month of September. In US dollar terms, it is down 3.8% over the month, which reflects the state of the weakening rand. That’s almost on a par with gold’s 3.3% decline over the last month.

Compare that with the Nasdaq, which is down nearly 10% since the beginning of September, or the S&P 500, down more than 8% last month.

Bitcoin’s recent resilience doesn’t amount to a hill of beans over longer time frames, but is seen by some as a sign that the bottom of the current bear market is at hand. It peaked above $69 000 in November 2021 before commencing its 72% dive to around $19 100, where it traded last week.

For the Nasdaq and S&P 500 indices, the declines over the last nine months are 21% and 25% respectively.

You were much safer sticking with stocks during this bear market, but there are fears that the worst may not yet be over for equities.

Amazon and Apple both lost about 10% in September, while Tesla exited the month relatively unscathed, with a decline of just 3%.

Bitcoin held relatively firm in a spectacularly volatile month, with Nike crashing 15% in two days last week on news of a massive inventory build-up suggesting sales are withering, while chip manufacturer Micron’s stock lost 10% amid warnings of a plunge in demand.

In all, stock markets have lost $16 trillion since January, which is more than the entire GDP of China.

Central banks worldwide have been hiking interest rates, strangling liquidity and corporate earnings prospects. Market commentator Alpha argues we are near the inflation peak and interest rates will have to be tamped down to avoid more calamity in an already perilous market.

“October is the month that the bottom will be seen, if not already, because a confluence of [the] above says to me the pain colliding with the hard data will provide enough excuses to start backing down (calming down) and is now in plain sight,” writes Alpha in a recent market commentary.

Crypto has been tracking equity prices in recent months, though that correlation tends to weaken during bull markets. Crypto research firm Glassnode notes that one factor weighing in favour of bitcoin is a growing corps of investors apparently prepared to ride out the fantastic price swings witnessed since its creation in 2009.

“As the evaporation in global liquidity continues, emphasised by new local highs on the US Dollar (DXY) index, Bitcoin has remarkably shown a degree of relative strength,” notes Glassnode in a newsletter to clients last week.

“BTC prices remained range bound this week, trading between a peak of $19 639 and lows of $18 309. However, price action is just barely hanging on to the consolidation range lows set in July, holding the line from what could be further capitulation.”

Though there is no indication of a BTC recovery yet underway, there are signs that the number of medium-sized retail participants in the market, which has been in decline for more than a year, is bottoming out.

A feature of the bitcoin market is the accumulation of ‘mature’ coins.

This is due to “the dominant investor behaviour being a refusal to spend despite exceedingly uncertain global markets,” says Glassnode. Almost all market activity is being conducted by the same cohort of ‘young’ coins repeatedly changing hands. As the number of young churning coins declines, it can lead to an eventual supply squeeze if and when the market turns.