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

© Reuters – In an analysis note published yesterday, the bank Morgan Stanley (NYSE:) addressed the case of Bitcoin and cryptocurrencies in general, providing clues to explain the market’s downward trend for the past few months.

Morgan Stanley explains why Bitcoin is falling

Confirming a sentiment shared by many observers, she recalled that loose monetary policies and stimulus measures have been the main bullish factors for cryptocurrencies in recent years, stressing that it is logical that the market should 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 measures have been the drivers of cryptocurrency prices rising exponentially in 2020 and 2021. Now that the Fed and other central banks are looking to slow their balance sheet expansion 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 bitcoin’s annual growth rate peaked a month later in mid-March, which is no coincidence,” the statement wrote. 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 rather than gold

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

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

Pointing out that an inverse correlation between gold and Bitcoin could be observed 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 judged that this “supports our view that crypto-investors should pay more attention to equities than to gold prices”.

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