FX.co ★ Bitcoin outperforms stock indices and gold: why is this happening and what does it mean for cryptocurrency?

Over the past few months, the cryptocurrency market has undergone significant changes, as has the entire financial system. The changes were beneficial, thanks to which the asset reached a local maximum at $48k. Investors use Bitcoin as a means to protect against inflation and to a lesser extent as a reserve asset. However, this did not prevent the cryptocurrency from maintaining a correlation with stock indices. This paradox is the main reason why the asset remains the main financial instrument.

The war in Ukraine has launched a massive campaign to accumulate the first cryptocurrency in the hands of large investors. In parallel, the price of Bitcoin began to rise and eventually peaked at around $48k. This was an important bullish signal for the market because the asset went beyond the range in which it languished for more than 2.5 months. However, as it approached $48k, the cryptocurrency began to lose its bullish fuse and eventually declined to the area of $42k-$44k under the pressure of bears.

This was largely due to the stock market, which has been subject to fluctuations in the last week due to the Fed's reporting. The necessary liquidity that comes to the crypto market as investment activity unfolds on the stock market has not appeared. This directly indicates the co-dependence of the cryptocurrency with stock indices and investor sentiment.

The correlation between Bitcoin and gold has increased. Both assets proved to be in high demand in harsh geopolitical and economic conditions. A bullish trend was formed on gold a few weeks before the immediate start of hostilities in Ukraine. However, the longer the war lasted and the more Western sanctions hit the dollar and gold reserves of the Russian Federation, the weaker gold looked. In gold, investors suddenly saw a risky asset that is very easy to "cancel." In this regard, Bitcoin is fundamentally different from any financial instrument due to blockchain technology and decentralization.

Despite the growing open interest in Bitcoin, the asset retains a correlation with stock indices and gold at the same time. First of all, this speaks about the evolution of the cryptocurrency, which, unfortunately, is developing at a rapid pace during disastrous geopolitical events in every sense. As of April 7, multi-functionality is the main advantage of the cryptocurrency. Bitcoin has shown that it can be in demand in different guises, and despite the absence of a protracted upward trend, the asset is strengthening from a fundamental point of view.

As for the near future, the main mouthpiece of the upward movement of BTC/USD will be the full implementation of the digital asset as a reserve. So far, this trend is relevant among large companies, but as the legal regulatory framework develops, there is no doubt that it will also affect the sovereign funds of states. However, this requires time, since the state institutions are among the most conservative in terms of investment selectivity.

Bitcoin exacerbated the fall and, after a period of consolidation, tested the support area twice, after which it realized a bearish scenario. A powerful bearish engulfing pattern was formed. Bitcoin has slipped to an important support area at $42k-$44k. As part of a bullish trend, this is a positive development, as it allows you to collect additional liquidity that the stock market does not provide. Technical indicators have also "cooled down," and there is no doubt that in the near future we will have another stage of the upward movement with a full breakdown of the $48k level and further movement towards $50k.