Does The Collapse Of Bitcoin Signal The End Of The Rise Of The S&P 500?

The recent drop in Bitcoin could foreshadow a summer correction in the US stock market, according to analysts at Stifel. While crypto struggles to regain its March highs, experts are questioning the implications for the S&P 500, a key barometer of the US economy.

A historical correlation that worries the markets 

Barry Bannister, chief equity strategist at Stifel, highlights the strong correlation between Bitcoin and the Nasdaq 100 since 2020. This relationship is explained by the perception of BTC as a speculative asset rather than “digital gold”. 

Stifel’s analysis reveals that the S&P 500, a major stock index grouping the 500 largest publicly traded companies in the United States, tends to stagnate in the six months following Bitcoin’s peaks. 

 This pattern has repeated itself several times, suggesting a possible decline in the US stock index. The current divergence between Bitcoin’s weakness and the continued rise of the stock markets, driven by tech giants, could therefore signal a trend reversal.

Bitcoin, which was trading around $66,012 on Thursday, shows a drop of more than 10% from its all-time high of $73,462.59 reached on March 13, 2024. This persistent weakness intrigues observers, especially as the stock market continues to reach new highs.

The macroeconomic factors at play

Stifel analysts highlight the crucial role of the monetary policy of the US Federal Reserve. Since 2011, the Fed’s accommodative policies have largely contributed to Bitcoin bull markets. However, persistent inflation could push the central bank to adopt a less favorable stance, thus exposing the overvaluation of the S&P 500.

In this context, large-cap technology stocks, such as Nvidia, appear particularly vulnerable. Stifel anticipates a possible correction in the third quarter, questioning the leadership of these titles on this year’s stock market gains.

Despite these warning signals, Stifel strategists do not rule out the possibility of a short-term continuation of the rise. They mention a possible “bubble mode” for investors, comparable to past speculative episodes.