What is Bitcoin? A protection tool against inflation or new gold? History confirms that BTC price is more dependent on the US stock market dynamics. BTC/USD quotes fall or rise depending on changes in global financial conditions just like stock indices. If this assumption is correct, institutional traders need paid news sources that move the S&P 500, the Nasdaq Composite, and the Dow Jones index. Traders have to monitor these movements. However, that is enough to make money in most cases.
The great mystery of August is the divergence of US stocks with other asset classes. The commodity market is wary of a recession and is falling. The US dollar is rising due to increasing demand for safe-haven assets and in expectation of the Fed's further monetary tightening. On the other hand, stock indices are heading north anticipating that the Fed will begin cutting the interest rate in 2023. The S&P 500 rose by 17% from its June lows and is about to enter bull market territory. Bitcoin's fall suggests that a recession is more likely than the Fed's stance that the central bank can support the stock market.
Bitcoin dynamics and its correlation with S&P 500
First, it seems the divergence of BTC, which has closed 5 of the last 6 trading sessions in the red zone, and the US stock indices is caused by negative news from the crypto industry. The authorities are tightening regulation of the crypto market. The US Treasury Department has imposed sanctions against crypto mixer Tornado Cash which allows users to mask their transactions. Moreover, the Fed recommends that lenders should comply with the rules and notify it if they engage in any cryptocurrency transactions. Three publicly traded US mining companies lost more than $1 billion in the second quarter due to crypto winter.
I believe the factors of an impending recession and the Fed's rate hikes that affect all financial markets are more important to Bitcoin than news of tighter regulation or miners' losses. The reason why BTC/USD is falling, while stock indices are rising is that the managers of assets try to seize the last opportunity. In June, they expressed the deepest pessimism about stocks in decades. It means declining shares of these stocks in their investment portfolios. Currently, they want to correct their own mistakes. On the other hand, cryptocurrencies are not the major focus of attention.
Technically, the Three Indians reversal pattern has clearly worked out on the daily chart of BTC/USD. Bitcoin's decline below fair value at 23,800 was a sign of the bulls' capitulation. I recommend holding short positions formed from the level of 24,000. If US stock indices fall in expectation of Jerome Powell's hawkish rhetoric in Jackson Hole, the Bitcoin's peak in the direction of 19,800 and 17,800 will accelerate.