level 1
Wesleypipes421
Bitcoin Maximalist
63 points
·
8 hours ago
·
edited 7 hours ago
"So I've been doing some research to identify the key macro thematic going forward for FX trading and I think I've discovered something really interesting relating to BTC by accident.
Basically I've been comparing certain FX pairs to the Ishares emerging market ETF (based on the MSCI EM index) to see correlations and what is driving price action. Anyways I flicked through my TradingView tabs to BTCUSD with EEM (Ishares EM ETF ticker) still on compare and spotted something which I feel isn't a mere coincidence.
Bitcoins price since the end of the 2015 bear market has shown a reasonably strong correlation with the health of emerging markets:
Of course, as is observable from the left of that chart the correlation didn't exist prior to 2015:
This shows that what I think I am observing now with regards to a potential correlation didn't exists prior to 2015.
Anyhow, I thought to myself that there may be a longer term trend correlation, but not a short term correlation. Because of that thought I was eager to see if certain swings in BTC's price have shown a strong correlation with certain swings in the EEM index and I found a few examples:
The February 6th crash and subsequent risk on rally showed a strong correlation which eventually broke into April:
The May/June sell off from 10k coincided with a harsh sell off in the EEM index:
The June/July bull trap rally showed a strong correlation which held all the way until the end of the hidden bull whale grind rally:
After this point EEM continued to capitulate whilst BTC played its boring game at 6k, it wasn't long though before Bitcoin played catch up:
Now looking at that chart it seems that in the last 7 months the concurrent correlation has broken down, but it seems like EEM is now leading BTC and that favorable conditions in Emerging Markets correlate with favorable conditions for Bitcoin.
What does this mean if this correlation is actually legitimate?
Well firstly it means that Bitcoin isn't an uncorrelated asset class anymore and that the uncorrelated narrative has been untrue since 2015. Bitcoin is a play on the health of Emerging Markets and by proxy China and whenever those markets get rekt the Bitcoin market also deteriorates.
Secondly it means that a macro thematic can be extremely useful in deciphering Bitcoin's price action going forward and seems like a must have for any trader looking maintain an holistic view of the Bitcoin market.
Thirdly it means that the strength of the Chinese economy (which buoys and leads EM) is very important, it also means that the strength of the US Dollar is important because a strong dollar is what causes EM problems.
On that last thought here is a chart of BTC vs DXY (Dollar Index) Inverted, its not as strong a correlation compared to EEM but there is something there:
Anyway, I know a lot of the pro Bitcoin crowd are fairly stubborn and dismissive of legacy people trying to frame macro analysis over Bitcoin and if you're one of those people feel free to toss this out or critique it below. But (at least to my eye) this macro theme looks legit so although I have already been using it for trading Fx pairs I may also use it now to analyze Bitcoin's price for future trading opportunities."
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