: Past Data Indicates Bitcoin is a Leading Indicator for the S&P 500
• Market investors should keep an eye on Bitcoin for potential bearish-to-bullish trend changes in U.S. stocks.
• Bitcoin has a tendency to lead major stock market bottoms by at least six weeks.
• Bitcoin is a narrative-driven asset, and its movements are largely dependent on the global economy.
As the stock market continues to move through its cycles of volatility, traditional market investors are looking for clues as to when a potential bearish-to-bullish trend change might occur. Fortunately, there is a solution – Bitcoin. The leading cryptocurrency by market value has a tendency to lead major stock market bottoms by at least six weeks, according to analysis of past data by Delphi Digital.
This data shows that Bitcoin has the capacity to act as an early warning system for stock market investors, providing them with an opportunity to capitalise on the potential for price rises before the market makes its move. Indeed, when looking at the past five years, all major price reversals in BTC have preceded those in major equity indices.
But why is Bitcoin so effective at predicting stock market movements? The answer lies in the fact that Bitcoin is a narrative-driven asset, and its movements are largely dependent on the global economy. It is seen by investors as a riskier asset than stocks and its value is almost entirely dependent on the pace of expansion in fiat currency supply, mainly the U.S. dollar, and factors like inflation rate that influence the Federal Reserve policy.
When discussing the correlation between Bitcoin and the stock market, the strategists at Delphi Digital said, “The crypto market is one of the purest bets on global liquidity expansion and currency debasement. Not only is it influenced by macro factors, but when market conditions change, it’s often the first to react.”
Indeed, the data bears this out. Bitcoin peaked at $69,000 on Nov. 11, 2021, or 55 days before the S&P 500 topped out at 4,818 on Jan. 4. The index’s early 2018 top came 42 days after BTC’s bull run ran out of steam near $20,000. The cryptocurrency bottomed out 11 days and eight days before the S&P 500 did on March 23, 2020, and Dec. 24, 2018, respectively.
So, for traditional market investors looking for hints of a potential bearish-to-bullish trend change in U.S. stocks, it appears that keeping a close eye on Bitcoin is essential. By doing so, they may have the opportunity to capitalise on the potential for price rises before the market makes its move.