Today I would like to talk to you about the market situation and the correlation between Bitcoin, global liquidity and the ARK Innovation ETF.
We are in a historical market moment, with Bitcoin closing 7 red weeks in a row and other historical declines in many markets. Dow Jones has just recorded 8 straight weeks in a negative and this hasn't happened since 1923.
One of the main causes is to be found in the excessive liquidity with which the markets have been flooded in recent years, starting with the outbreak of the global pandemic. The expansionary monetary policies of the central banks have caused all the lists to swell, which have however reversed the trend for a few weeks, especially since the FED announced the next hikes in interest rates.
Very interesting analysis topic is the correlation between Bitcoin and equities, in particular technological stocks, and in this regard I would like to share with you the post by Paolo Cardenà, private banker, blogger and writer.
"What is Bitcoin?
I don't think I know very well, but we can tell what it is not.
It is not a store of value.
It is not a hedge against inflation.
It is not even a hedge against the downturn in the markets.
To see the graph it appears to be something very similar to ARK Innovation ETF. Indeed it appears to be a leveraged ARKK ETF.
And just as ARK ETF appears to be following the fate of global liquidity. "
For those unfamiliar with ARK, it is the financial giant founded by Cathie Wood and which offers various types of funds. The flagship product is undoubtedly ARK Innovation, a fund that focuses on innovative and disruptive stocks, within which, for example, Tesla is one of the bets that have been enormously successful.
Why are these stocks so sensitive to liquidity dynamics?
With low interest rates it becomes financially indifferent to earn today or earn tomorrow.
With high rates, the difference between earning today and earning tomorrow becomes more significant.
Taking Tesla as an example, the capitalization value does not come from current earnings (still not comparable to those of Volkswagen, Toyota etc) but from future earnings (it is expected that he will become king of the auto market and beyond).
With low rates, the "discount" to be made to future earnings is low. With high rates, the discount to be made to future earnings becomes higher.
For this reason, as long as rates were low and liquidity was high, it was not a problem for investors to "wait" for Tesla's earnings while with the rate hike and monetary policy shift central banks are making. expectation becomes more sacrificed and the present value drops.
In this scenario, we are seeing a high correlation between Bitcoin, technology stocks and the amount of global liquidity, as we can also see from the graph below. Bitcoin has for the moment held better than expected in the current market conditions, with the support of 30k holding for the moment.
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