This little-talked about correlation suggests bitcoin may end year 'explosively higher': Tom Lee

If you're trying to figure out when bitcoin's slump will end, you may want to look at the emerging markets.

According to Fundstrat Global Advisors' Thomas Lee, there's an important correlation budding between emerging markets and bitcoin, the most dominant coin in the cryptocurrency space."

"Both really essentially peaked early this year, and they both have been in a downward trend," the firm's head of research said Friday on CNBC's "Trading Nation." "Until emerging markets begin to turn, I think in some ways that correlation is going to hold and tell us that sort of the risk on mentality is those buyers aren't buying bitcoin."

The iShares MSCI Emerging Markets Index ETF is down about 8 percent so far this year. It's painful, but not as much as the epic bitcoin sell-off.

Bitcoin's buying frenzy came to a virtual screeching halt shortly after reaching a record just show of $20,000 last December. Since then, the cryptocurrency has fallen by 65 percent. It's now trading in the $6000s since August 8.

Lee contends hedge funds aren't buying risk when emerging markets sell-off. The recent trading activity suggests they aren't buying bitcoin either.

But that bearish trend could be about to end.

Lee, who owns bitcoin and has been among the biggest bulls on Wall Street, sees the tide changing in favor of both areas of the market — especially if the dollar weakens and the Federal Reserve slows its interest rate hike policy. He also points out there's big money and firepower on the sidelines in the cryptocurrency space.

Those factors could help bitcoin surge to $25,000 as 2018 winds down, according to Lee.

"I still think it's possible," said Lee. "Bitcoin could end the year explosively higher."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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