Bitcoin Price Influenced by Global Emerging Stock Markets, Says Tom Lee
Wall Street’s bitcoin bull Tom Lee has come up with a new indicator to suggest bitcoin’s future trajectory. Fundstrat’s Lee has linked MSCI Emerging Markets Index, which measures stock markets in global emerging markets, to bitcoin’s rallies and declines. Lee also noted his continued optimistic outlook for BTC, saying the top cryptocurrency could still reach the $25,000 USD mark by year-end.
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A New Indicator for Bitcoiners to Eye
In new remarks on CNBC Money, Tom Lee, a managing partner at Fundstrat Global Advisors, laid out his argument for why activity around emerging markets may have a strong correlation with bitcoin trading.
With the qualification that “mining and fundamental factors like network effect” are the main drivers of the BTC price, Lee speculated the MSCI EM Index, which measures against the S&P500 the performance of 24 emerging markets in nations like India, the Philippines, and South Africa, shows that bitcoin’s value is closely linked with “macro factors.”
To that end, Lee pointed out that as emerging markets rallied in December last year, bitcoin peaked toward $20,000. Moreover, the Fundstrat co-founder said BTC’s value has since plunged as emerging markets have also experienced large drawdowns.
Lee posited that one relevant macro factor is hedge funds’ “risk-on risk-off” investment strategy in emerging stock markets. He argued the top cryptocurrency’s value takes a hit when a risk-off environment transpires, which consequently causes funds to turn toward lower-risk investments
With that said, the MSCI EM Index just seemingly slipped into a bear market.
Do Volatile Emerging Equity Markets Directly Affect BTC’s Network Effect?
The Wall Street financial advisor said that another factor influencing the bitcoin price is the so-called “wealth effect” in emerging markets.
Lee explained the phenomenon as such:
“If you’re living in an emerging market and you see your stock market fall hugely, well that means you have a lot less money to buy bitcoins, so that affects the network effect because you can’t buy bitcoins.”
For hedge funds, the volatile nature of emerging equity markets offers significant returns but also significant risk. Lee argued that within this dynamic, higher losses meant lower investment participation into bitcoin. This wealth effect directly upsets bitcoin’s network effect, Lee thinks, insofar as it does not add more investors it similarly does not gain more value.
Not long ago, the analyst created the Bitcoin Misery Index (BMI) — a sentiment indicator based on how people are emotionally feeling about bitcoin. During his latest CNBC appearance, Lee’s BMI was hovering at 36 on a scale out of 100.
Earlier this year, Lee’s short-term BTC predictions didn’t materialize, however, he clarified in his latest remarks that he still thinks $25,000 by the end of the year is still possible for the OG crytpocurrency.
Is BTC price influenced by emerging markets? Share your views in the comments section.
Images via CNBC, Pixabay