BTCUSDT Daily Chart
While some Bitcoin bears have been eyeing on the 5000 levels, our data shows that bearish sentiment remained intake with futures trading at a discount to the spot price after the selloff on Wednesday (figure 2). It’s considered as a classic indication that traders were still bearish on BTC, expecting the price to be lower than its current price by the end of the quarter in December.
Figure 2
BTC Quarterly Futures Traded at Discount
What’s Behind the Plunge?
There were a few macro events that hit the wire at the time of the price actions. While many believe that the US Congress’ skepticism over Facebook’s Libra was one of the major factors, Google’s latest announcement on its breakthrough in quantum computing is an issue that crypto watchers can’t afford to ignore.
In a report published by the science journal Nature, Google claimed that its scientists have achieved “quantum supremacy”. The report said that in one test, its quantum computer processor was able to complete a complex mathematical problem in just 200 seconds. The same problem would have taken the world’s fastest supercomputer 10,000 years to complete. While computer giant IBM has already cast doubt on Google’s claim, and the technology is still far from any meaningful commercial application, some analysts worry that quantum power could break Bitcoin’s cryptography, potentially jeopardizing the leading cryptocurrency.
On the other hand, several critics argue that Google’s quantum machine didn’t contain adequate computing power to crack Bitcoin’s algorithms. However, long term Bitcoin hodlers should put a close eye on this whole quantum development. Although it remains in its initial stage, we expect this development to linger in the crypto markets. But it’s unclear how markets would price in a “quantum discount”.
The VIX Factor
Measuring market sentiment is another key when it comes to riding on top of the market. In our previous publication A Tale of Two Assets, we reviewed that the bullishness in equities markets is required to ignite the risk-on side of Bitcoin. Yet, Thomas Lee, co-founder, managing director and head of research at Fundstrat Global Advisors, believes that Bitcoin is still in risk-off mode after this week’s sell-off. We could add another layer of dimension if we put this theory in the context of the VIX.
The CBOE VIX Index gauges the volatility of the S&P 500. It’s widely considered as a reliable indicator of the market’s risk appetite. The VIX usually hovers at around 15 and has mostly stayed above that level since 2018. So, 15 could be a sentiment watershed. Anything above 15 could indicate risk-off, and below 15 could mean risk-on.
The chart below shows the VIX (green line) and Bitcoin (yellow line). Interestingly, when the VIX is below 15 (indicated in red line), Bitcoin mostly would show a negative correlation with the VIX (red boxes). When the VIX is above 15, bitcoin would shift to an often positive correlation with the VIX (blue boxes).
It’s worth noting that although the VIX currently is at around 13, it seems that the VIX hasn’t been staying below 15 long enough for Bitcoin to react. It will be interesting to see if the risk-on sentiment in the equities markets are sustainable and could spill over to Bitcoin.
Figure 3
Bitcoin vs VIX YTD Chart
Conclusion
The cryptocurrency markets have shown initial recovery after the sell-off on Wednesday. Although some critics blame the tough stance on Libra from US lawmakers for price declines, Google’s quantum breakthrough could be another major reason and could potentially shift the macro sentiment on the broader cryptocurrency markets over the long term. In the short term, the global equities markets have been tilting toward the risk-on side for a while, and more equities bullishness could help Bitcoin to turn on its risk-on mode.
This post originally appeared on OKEx Blog. Read more.
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