Financial markets are not an exact science, since most traders would become millionaires, and this is far from being the case. Even the best Wall Street robots fail when there is turmoil in the stock markets. However, there are some “secrets” that do work and can be applied to cryptocurrencies, especially Bitcoin.
As is publicly known, the Coronavirus is wreaking havoc on traditional financial markets, which are directly affecting cryptocurrencies, although they are recovering in the last few hours.
The main Wall Street index, the Dow Jones, has lost 32% in the last month, according to data published in Yahoo Finance.
Secrets of traditional financial markets
The first thing to understand in traditional financial markets is that money is constantly moving from one place to another. For example, when Wall Street stock markets plummet 10%, investors who withdraw money from stocks buy other financial assets, which are known as safe haven, or value reserve assets, which I will mention below:
1- Treasury bonds
United States Treasury Bonds are one of the quintessential asset havens, as the country has always honored its debt commitment to investors. This is because the Fed can inject large amounts of dollars at any time, or in simpler words, always pay.
The problem with this investment is that it practically does not generate returns, but at least it preserves the value of money in uncertain times, such as what is currently being experienced.
Another of the safe-haven assets par excellence is gold, since it has demonstrated throughout its history that it is reliable to safeguard the value in hard currency (Dollar, Euro, etc.).
While it is still far from its all-time high of $ 1,900, reached back in 2011, it is still a good asset to have in any investment portfolio in times of financial turmoil.
In the graph below you can see the evolution of gold in the last 20 years.
3- Japanese yen
The Japanese currency is one of the few currencies that is used as a safe haven against the turmoil of the financial markets. This is because the eastern country has a healthy financial market, and enjoys credibility.
In the graph below it can be seen how in the first adverse movements of the world stock markets, the Yen acted as a refuge value. But then investors returned to the greenback. This is because they used the North American currency to buy treasury bonds. Is everything related or seems to me?
4- US Dollar
The United States dollar could not be missing in this list, which despite having tons of greenbacks around the world, is still the reference currency on the planet.
For now, there is no fiat currency that can overshadow you, I repeat once more, for now.
Just over 10 years ago, a new player entered the select pool of value reserve assets, thanks to the mysterious Satoshi Nakamoto. We are talking about Bitcoin, the cryptocurrency that is putting traditional financial markets in check.
11 years ago you could buy a Bitcoin for just a few cents, at the time of writing its value exceeds 4 ounces of gold (US $ 6,250).
Some accuse Bitcoin of having high volatility, which does not qualify as a safe haven. Is Wall Street not volatile? Take a look at the Dow Jones chart above.
In the graph below you can see the behavior of Bitcoin in recent years.
How do we put the pieces together?
Now, the active shelters have already been listed, how can we use this information to our advantage?
There is no written formula, but one of the great secrets of the markets, as we mentioned before, is to get money from one side and move it to the other. As they say out there: “Money never sleeps.”
Here are some useful tips for short-term trading, taking advantage of these “secrets of the markets”:
- If Wall Street futures are trending negatively (before the stock market opens), it is highly likely that safe haven assets will tend to appreciate (Yen, Dollar, Gold and in some cases Bitcoin).
- On the contrary, if futures operate with strong gains, safe-haven assets will tend to depreciate at the opening of the stock markets, which would be a good opportunity to place sales orders.
This is just the beginning, there is much, much more to consider in this jungle of financial markets. Attention should also be paid to the closure of the Asian markets, especially the Japanese and the Shanghai stock markets. Without forgetting, of the European bags, especially those that have high volume of negotiations like the German, Spanish and French.
How to take advantage of the secrets of the markets in Bitcoin?
If we consider Bitcoin as a safe haven, one possibility is to buy BTC when things get ugly, as is the case in the markets right now.
However, At what time to buy? If you think about the long-term investment buying at this level can be a “bargain”. On the other hand, if you are a short-term trader, you must wait for a key support to enter, or take indicators from the traditional financial markets, as I explained previously.
To finish, I remind you that all the information in this post should be taken only for educational purposes, inviting you to investigate and deepen the aforementioned topics.
If I managed to arouse your curiosity a little about how traditional financial markets move and their influence on Bitcoin, I will not have written this post in vain.
Were these secrets of the markets useful to you? Let us know in the comment box.