Many see Bitcoin as a safe haven and a store of value, like gold. But some currency traders view it as a leading indicator of the overall market mood, and they were right once again: Before recently finding stability near $70,000, bitcoin plunged sharply, presaging the current collapse of the global stock market.
The price of Bitcoin peaked above $126,000 in early October and began to decline, eventually hitting a low near $60,000 early last month. The selloff was accompanied by rapid outflows from U.S.-listed cash ETFs. CoinDesk reported this in January, questioning whether these flows – in the absence of a clear crypto trigger – signaled an impending macroeconomic blowout and stock market sell-off.
Fast forward to today: global market sentiment has deteriorated, with the war in Iran and soaring oil prices weighing heavily on Asian and European indices. The S&P 500 and Nasdaq have also been under pressure while the dollar index advances. Meanwhile, Bitcoin remained stable around $70,000.
Here’s where it gets even more interesting: Key stock indexes like the S&P 500 reflected Bitcoin trading before the crash in a wide range.
Bitcoin remained above $100,000 for months in this volatile and expanding channel before plunging into bearish territory. An identical pattern played out in the SPDR Financial Select Sector ETF (XLF), India’s Nifty (among the hardest hit), and S&P 500 futures.
Repeat of 2021-22
This is not the first time that Bitcoin has dominated the price action of traditional risk assets. Over the years, cryptocurrency has often foreshadowed stock trends, most clearly in late 2021-2022.
BTC peaked at almost $60,000 in November 2021 and quickly fell below $50,000 within a month. The bear market deepened in 2022. The Nasdaq and S&P 500 peaked two months later in January 2022, then followed suit with their own prolonged declines as the Federal Reserve rapidly increased borrowing costs.
Todd Stankiewicz, president and chief investment officer of SYKON Capital, in a blog post on the Chartered Market Technical (CMT) website, noted bitcoin’s tendency to peak before the S&P 500 in three key instances: late 2017, weeks before the COVID crash, and late 2021.
“Bitcoin reversed or failed to make new highs while the S&P 500 advanced. In each case, the stock rally eventually stalled and reversed,” Stankiewicz said.
All things considered, the takeaway is clear: stock traders should start closely monitoring Bitcoin trends from here.
