The price of Bitcoin (BTC) abruptly dropped 4% from the days peak on Oct. 30 as the uncertainty in the stock market intensified. With five days left to the U.S. presidential election, Bank of America (BofA) suggested a 20% drop is possible.
The Dow Jones Industrial Average (DJIA) declined 7.55% since Oct. 12. Tech-heavy stock indices performed slightly better in the same three weeks as the Nasdaq dropped 5.8%.
While the correlation between Bitcoin and stocks has declined in recent weeks, the slump of risk-on assets could negatively affect cryptocurrencies.
The daily chart of Bitcoin with moving averages. Source: TradingView.comWould a risk-off drive hurt Bitcoin in the short term?
According to BofA economists led by Michelle Meyer, the election result is not the biggest threat to equities.
Rather, it is whether a contested election occurs that could cause the markets to rattle due to the uncertainty. The markets could still rally regardless of who wins the election. But a contested election may lead to a market slump. The economists wrote:
Landslide victory for either Trump or Biden and rapid election conclusion would likely be welcomed by markets while a severely contested election could see risk-off and drive 10-year rates materially lower.
For Bitcoin, it is still difficult to gauge whether a potential prolonged equities dump would cause a pullback.
Since Oct. 12, while U.S. stock market indices declined by 5% to 6%, Bitcoin rallied by nearly 16%. In the last 18 days, BTC rose from $11,167 to $13,290, massively outperforming gold, stocks and the U.S. dollar.
But, the confluence of Bitcoin facing a multiyear resistance level at $14,000 and the lack of certainty around risk-on assets could slow BTCs momentum.
In the near term, as
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