Securities trader and analyst Alessio Rastani says the market that “knows all” is flashing a warning signal that could spell trouble for Bitcoin (BTC).
In his latest market review, Rastani explains why the bond market is a reliable indicator of the performance of the stock market.
“Bonds are typically traded by big institutions, big funds. So for that reason, what the smart money, what these big institutions are doing, how they’re betting on the bond market is quite important. Often, we see signs or warnings in the bond market before we see it in the actual stock markets.”
Rastani emphasizes that stocks and bonds usually go in the opposite direction as bonds are viewed as a hedge against the stock market. But as of late, stocks and bonds are both moving higher, which is an ominous sign according to the trader.
“Bonds have been going up with the stock market, in fact, going up together. That’s not a good sign because that means one of these charts is not correct. Something is not quite right here…
Whenever bonds are going up, it means the forces of deflation, not inflation, are still with us… Deflation is winning and inflation is losing. That’s pretty bad.”
The trader explains that deflation is a vicious cycle that starts with falling demand and creates declining prices, debt defaults, insolvencies, and layoffs, which leads to more falling demand, and so on.
As deflation rears its ugly head, Rastani says that it creates an environment that’s ripe for a spike in volatility.
“The fact that bonds are going up with the stock market is warning us. Again, deflation is winning and uncertainty and volatility are coming for us, potentially next few weeks and months.”
As for Bitcoin, Rastani says the fortune of the king crypto continues to be tied to the stock market. Should the stock market fall, it is likely that BTC will follow suit.
“Because of the correlation between the S&P, the stock markets, and Bitcoin, it’s very possible that when the stock markets start their correction, their retracement, that could influence Bitcoin, too. We’ve seen before how Bitcoin and the stock market often move in tandem, in correlation…
Once the S&P has a major retracement, once it has a major pullback or correction, I think we could see a similar correction, major, deep correction in the price of Bitcoin as well.”
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