Wednesday's Market Minute: Two Sides Of The Same (Bit)Coin

Bitcoin's recent breakout could be one of the most important moves in its history. Not only is it happening at a seemingly crucial juncture for the economy, but it's doing so as important relationships in the market are being tested and possibly preparing for a new regime. Bitcoin and the Nasdaq have traded in lockstep for almost all of 2020, but over the past ten days have seen the lowest correlation in more than a year.

Part of the excitement has surely stemmed from Paypal Holdings Inc's PYPL adoption of Bitcoin into its ecosystem, but you can't ignore the timing of Bitcoin's rally within the broader macro context. As Bitcoin is detaching itself from stocks, its inverse relationship with the U.S. dollar the past six months remains strong. With expectations of big fiscal stimulus being an eventuality no matter who wins in November, Bitcoin bugs are giddy at the prospect of money-printing pushing the dollar lower.

The dollar hasn't made new lows in two months, so that doesn't go all the way to explaining Bitcoin's pop, but Treasuries did sell-off this month without any massive economic data beats or hot inflation prints, so that supports the idea that investors are thinking about incoming supply as a market catalyst. That's music to Bitcoin's ears. So, it's all potentially very exciting for crypto bulls, but King Crypto still has a few big things it needs to do to convince skeptics like myself.

First, it needs to make a new high. Frankly, a lot of Bitcoiners are in it to make money, so a price trend that's going lower off the highs is a risky place to be if people are selling rallies.

Second, and most important, Bitcoin needs to do more to prove it's not just another risk asset. Beating the Nasdaq while equities are 4%-5% off the all-time record is a good start, but the real test will be if Bitcoin can stay afloat in a 10%-plus Nasdaq pullback. After all, the big Bitcoin rally just brings its 1-year move in-line with the Nasdaq – from that perspective, it's a whole lot of hoopla.

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