Morgan Stanley explains why Bitcoin is plunging, highlights link to stocks

© Reuters – In an analysis note released yesterday, the bank Morgan stanley (NYSE 🙂 addressed the case of Bitcoin and cryptocurrencies in general, providing clues to explain the downtrend in the market for the past few months.

Morgan Stanley explains why Bitcoin is falling

Confirming a sentiment shared by many observers, she recalled that lax monetary policies and stimulus measures have been the main bullish factors for cryptocurrencies in recent years, stressing that it makes sense for the market to fall as investors now anticipate. clearly a tightening of monetary policies, in particular that of the Fed, in 2022:

“Low global interest rates, expanding central bank balance sheets, and government stimulus have been the driving forces behind the exponential rise in cryptocurrency prices in 2020 and 2021. Now that the Fed and others central banks seek to slow the expansion of their balance sheets and prepare markets for interest rate hikes, leveraged crypto markets are weakening. “

Supporting the thesis of the link between monetary policy and the evolution of and cryptocurrencies, Morgan Stanley also highlighted a correlation between the evolution of the money supply and that of Bitcoin.

“The annual change in money supply peaked in February 2021 and the annual growth rate of bitcoin peaked a month later in mid-March, which is no coincidence,” wrote the Bank.

She added that “the prices of bitcoin and other cryptocurrencies, as well as most risky assets, were boosted by the injection of liquidity from central banks and low interest rates.”

Morgan Stanley advises crypto investors to watch stocks over gold

When it comes to the future of Bitcoin and cryptocurrencies, Morgan Stanley felt that the stock market is a much better indicator than.

She points out that “the market has treated most cryptocurrencies as speculative risky assets, as evidenced by the strong positive correlation between bitcoin and the stock markets over the past six months.”

Pointing out that there was an inverse correlation between gold and Bitcoin between August 2020 and March 2021, (the price of gold fell while the price of bitcoin rose), MS pointed out that this inverse relationship s is now attenuated.

She thus judged that this “confirms our point of view that crypto-investors should pay more attention to stocks than to gold prices”.

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