Buffett indicator predicts stock fall – How will Bitcoins react?
2 min readBuffett indicator, which takes the Wilshire 5000 index (considered the total stock market) and divides it by annual US GDP, is at its highest level since the Internet bubble in 2000.
Buffet indicator signals the fall of stocks
Meanwhile, on August 14, Berkshire Hathaway, led by Warren Buffett, invested in Barrick Gold, the world’s second largest miner. Some analysts said it could benefit Bitcoin (BTC) in the long run.
The historical average of the indicator is 1 and in front of the internet bubble it was 1.71. Currently, the Buffett indicator is 1.7, which signals that the stock market is highly overvalued. According to Tom Essay, founder of Sevens Report Research, stocks are considered “substantially overvalued” when the indicator reaches 1.3.
If the US stock market fails because investors fear an overvaluation of stocks, Bitcoin may have seen a major reaction.
Does it provide insight into the long-term trend of Bitcoins?
The current level of 1.7 suggests that there is potential for a sharp decline in the stock market. Essay said:
“It means that this cycle of asset inflation is better not to stop, because 1.7 times the total market capitalization to GDP tells us that if asset inflation stops, it will be a long, long way back to basic support.”
Over the last four months, Bitcoin has shown some correlation with the S&P 500 and gold. Since the end of July, due to the decline of the US dollar, BTC has been more closely following the price of precious metals. A potential fall in the US stock market could strengthen the dynamics of BTC. Some institutions began to consider Bitcoins as a legitimate repository of value, which caused a sharp increase in institutional investors.
The correlation between Bitcoins and S&P 500 broke slightly in the last week as stocks continued to rise. The price of BTC did not break the resistance at $ 12,400 and fell. The deteriorating correlation between Bitcoin and the US stock market and the current decline in BTC and gold are provoking bullish ideas for BTC in the event of a stock fall.
Robert Kiyosaki, author of Rich Dad, Poor Dad, also said a major banking crisis is comming. He stressed that Buffett had sold his shares in large US banks. He called gold, silver and Bitcoin, assets that made significant profits, as safe haven.
The rising correlation between Bitcoins and gold and the state of the stock market could increase the likelihood of a BTC uptrend if stocks start to fall.
image source: yahoo.com
