Bitcoin, Stocks Nosedive Despite Incoming $900 Billion Stimulus

The narrative for higher gains in the stock market, gold, and Bitcoin following more stimulus failed on Monday. Instead, a new aggressive strain of coronavirus took center stage, fueling apprehensions of renewed lockdowns. 

Stimulus Package Plummets Bitcoin

“At long last, we have the bipartisan breakthrough the country has needed,” said the Senate majority leader Mitch McConnell. 

Lawmakers have approved the stimulus bill on the last working day of the winter session. After U.S. President Donald Trump signs on it, the law will come into effect.   

The new $900 billion financial aid package is the second relief package following the $2 trillion package passed in March. Earlier this year, coronavirus fears toppled all markets, including Bitcoin. Government intervention was necessary due to the severity of the crash.

The package grants $600 payments to individuals and a $300 unemployment benefit per week. This is just half of what the U.S. government gave out the previous time. 

The bipartisan committee also approved $284 billion for small business loans, will direct another $20 billion to small business grants, and $15 billion to live event venues.

Moreover, a significant portion of the bill will be aimed at the “procurement and distribution” of coronavirus vaccines. 

However, just as vaccines and stimulus were projecting a healthy recovery of the economy, a new coronavirus strain has renewed lockdown possibilities. This new strain is, reportedly, showing a higher rate of transmission. The mutated variant has been identified largely in the U.K. and South Africa. 

England has imposed strict lockdowns in parts of the country, while many nations have suspended flights from the country. 

Investors Go Off-risk

Financial markets had developed a risk-on sentiment with the hopes of more stimulus and recovery due after discovering a vaccine. Both Bitcoin and stocks have enjoyed strong gains thanks to this thesis.

Renewed government restrictions and fear of another violent outspread are sucking the liquidity from these risky assets. Despite the stimulus package approval from the U.S. Congress on late Sunday, the markets opened negative the following day. 

The market’s impulse reaction depicted lockdown fears as the S&P 500 index dropped 3.4% to lows of $3,608 Monday. The S&P 500 futures index closed 0.87% lower on a daily scale.

BTC closed negative 3.15%, plummeting to lows of $21,915 alongside equities. The cause of Bitcoin’s correlation with the stock markets is higher risk than fiat currencies and commodities. 

On the other hand, the greenback, which had been in a downtrend since November, showed strength as the U.S. Dollar index jumped by 1.5% to highs of $91.01 the previous day. The Dollar Index (DXY) is trading 0.38% higher from last week’s closing. 

S&P 500 and Bitcoin daily price chart. Source: Trading View

Governments around the world have started providing vaccines to health workers and people in other vulnerable professions. 

However, while the distribution process takes effect, the prevailing situation of low productivity and concerns around the newer strains threatens liquidity flow back to the U.S. dollar in the short-term.

Bitcoin and the stock market are showing signs of recovery this morning. Bitcoin is trading at $23,550.