The discussion around Bitcoin being an asset that is correlated to the traditional markets or not continues to rage, especially in light of a presumed uncoupling with the stocks falling further and Bitcoin remaining flat. However, there is little doubt that the movements that have been seen on the traditional market side of things thus far have had a part to play in Bitcoin’s fall.

The main theory is that Bitcoin is paying for the institutional interest it has been longing to attract. Many argued that Bitcoin would flourish if it was able to attract money from institutional investors who would see it as a store of value, and even a digital gold.

It appears as if the big money in the Bitcoin markets was indeed coming from institutional investors, as the traditional markets clamped up and fear struck, so money was pulled out of the Bitcoin market leading to a massive collapse.

Bitcoin is seen as a hedge by some, but for those with large sums of money, it is an investment for times of greed. Thus, institutional investors would have been quick to pull their money out of the Bitcoin market when the traditional markets started falling.

What will make the markets normalize?

With that in mind, it appears as if we are in for a bearish time in the Bitcoin markets, at least until the normal markets come right — and probably a little bit after that for the risky investors to return.

Naeem Aslam of Avatrade has outlined in an email to investors what he believes the market needs to normalize.

Firstly, after the Fed cut rates to zero in order to try and stimulate the economy, the AvaTrade analyst thinks there is no need for more of this.

“One thing is for certain, that we do not need any further interest rate cuts from central banks. This bazooka has no power at all because central banks have done enough in this realm. If slashing the interest rate could help the markets, then we should have seen the biggest rally in the US equity markets yesterday when the Fed surprised the markets with their enormous interest rate cut,” he said.

More so, there is a fear of a liquidity crunch that needs to be addressed:

“Fear of a credit crunch or liquidity drying out of the system is still real and this is the biggest threat amongst small to medium-size businesses. The reason is that small to medium-size businesses do not carry too much free cash flow and the amount that they usually hold will only help them last between three to four weeks, at max. If these businesses start to default, then we have an issue with banks going under stress, and if any of the major banks fail, then the domino effect begins. I have talked about this before: coronavirus is only a transitory concern until and unless there is no impact on demand due to higher bankruptcies,” he added.

Tackling the virus

Of course, the pandemic stemming from the Coronavirus is still the first thing that needs to be tackled as this is the catalyst for the market collapse, and it could be the beginning of a recession if not soon dealt with.

“The moment we see some sort of evidence that the virus situation is under control, I believe that would stem the current sell-off in the markets. So far, we are looking at a situation where countries like the UK have not taken the necessary steps of closing schools and universities, and I believe due to lack of appropriate actions, we are likely to see the situation becoming worse before it gets better.”

“Whilst Coronavirus is no one’s fault, it would seem that the reckless action (or lack of) of the British government is adding coal to this spreading fire. Whilst other countries are taking necessary measures such as closing schools and universities, the British government insists that doing so is unnecessary and that they are in control of the situation,” said Aslam