$4.3 Trillion in Cash Sidelined for New Bitcoin, Equities Bets

A revival in Bitcoin prices is likely with a lot of investor cash sitting on the sidelines and on-chain indicators waxing bullish. First, though, markets need clarity on two major concerns.

Buying into Fear? 

Markets hate uncertainty. When unsure, investors tend to increase their position in cash or risk-free options like bonds and fixed income rate contracts rather than equities or high-risk instruments, like Bitcoin. 

Two big fears are currently weighing over the world: The American elections and a second coronavirus wave.

While Trump may not be American’s first choice, Biden’s performance in the first debate failed to instill much confidence. Still, the polls are favoring Biden, although not by much. 

There is considerable uncertainty with 36 days and two more rounds of debating left. The leading financial analyst from Fundstrat, Tom Lee, noted in an interview: 

“Markets are really nervous [moving] into these 36 days. One of the really important things we have to think about is when does nervousness price in the worst that’s yet to come, when do you think the worst is priced in?”

The second and more severe uncertainty is coming from fears in a second wave of the coronavirus. 

European countries like the U.K. and France are reporting a surge in cases; nonetheless, the number of daily deaths is relatively lower. On the other hand, things haven’t improved in the U.S. 

America has reported the highest number of cases, even surpassing India with four times the population and about ten times the population density. 

Coronavirus cases update. Source: Wikipedia

The crash across all the global markets in March, excluding reserve currencies like the U.S. dollar and Japanese yen, is preventing investors from increasing their risk.

Expert View on Stocks

Since the crash in March, Bitcoin has risen 160%, whereas the S&P 500 and gold rose by 60% and 40%, respectively. Many have been surprised to see these bull markets at the peak of coronavirus cases.

Hence, there are many reasons to believe that the top might be in for the year. 

Nevertheless, Lee, who accurately predicted new all-time highs in stock prices after bottoming at the beginning of this year, is preparing to buy again. He noted in the interview: 

“I think stocks are not in a downtrend because, number one, there’s still $4.3 trillion in cash on the sidelines. I don’t think in the history of any financial market in the world do you ever have a top when there is 20% of the equity market sitting in cash.”

Thus, there are “tons of dry powder” to fuel another rise. According to Lee, the 62% and 38% Fibonacci levels in the S&P 500 at $3,224.5 and $3,363.3 are the critical support and resistance in the short-term. 

Furthermore, Lee expects that the bearishness due to uncertainty will be gone soon, and markets will start pricing in the positive aspects.

BTC and Stock Market Coupling  

Bitcoin price correlation with gold and S&P 500 has increased simultaneously since July. The coupling is bringing in another source of uncertainty specific to crypto markets. 

While the increased correlation with stock markets comes with the fears mentioned above, an economic revival could weigh down on gold as investors begin to take bigger risks. 

Hence, Bitcoin is stuck between bullish and bearish possibilities on both fronts.

Currently, Bitcoin’s fear and greed is around neutral territory but has a slight fearful inclination. 

Bitcoin correlation with S&P 500 and gold. Source: Coinmetrics

The on-chain activity in Bitcoin is also spiking. The miners are showing tremendous growth despite multiple shocks due to COVID-19 and halving of rewards. Moreover, the network activity has been spiking on-chain.

The seven-Day moving average for the number of new entities surged in September. While the price did not reciprocate with the increasing network activity, leading analyst Willy Woo suggests a “bullish divergence.” 

#marketupdate

We're seeing a spike in activity by new participants coming into BTC not yet reflected in price, it doesn't happen often. This is what traders call a divergence, in this case it's obviously bullish.

Chart by @glassnode pic.twitter.com/WrQueYL9up

— Willy Woo (@woonomic) September 30, 2020

In all probability, the uncertainty in markets is holding down the price of BTC. With further stimulus talks extended to this afternoon, many investors hope for more clarity before any continued bet-making.