Last Friday, financial markets faced a significant downturn as fears regarding inflation and trade disputes caused stocks to plummet. Wall Street encountered renewed inflation concerns while tariff uncertainties further fueled volatility.
Causes of the Stock Market Decline
The Dow Jones Industrial Average experienced a decline of 1.6%, losing more than 700 points. Meanwhile, the S&P 500 saw a 2% drop, and the Nasdaq recorded the largest fall at 2.7%. Major tech stocks, including Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Amazon (NASDAQ: AMZN), faced substantial losses.
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The downturn was partly instigated by a personal consumption expenditures index report exceeding expectations, indicating a core inflation rise of 0.4% month-over-month and 2.8% year-over-year. This persistent inflation raises alarm for the Federal Reserve, which aims for a 2% inflation target.
Moreover, market instability was amplified by U.S. consumer sentiment for March, which plummeted to 57, marking its lowest level since November 2022, as reported by the University of Michigan. Investors also reacted negatively to the increasing trade tensions, particularly after President Donald Trump reiterated his commitment to tariffs targeting foreign car imports. Additionally, the Federal Reserve Bank of Atlanta’s GDPNow index projected a 2.8% decline in U.S. GDP for Q1, escalating concerns regarding slowing economic growth.
The market sell-off was extensive, with the S&P 500 declining 1.87% to 5,587.11 points, the Nasdaq falling 2.51% to 17,357.64 points, and the Dow decreasing 1.62% to 41,612.69 points. Interest rate futures indicate a 76% probability that the Fed will lower interest rates by 25 basis points by June, according to the CME FedWatch Tool.
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Bitcoin and Cryptocurrency Market Trends
During Wall Street’s decline, Bitcoin also came under pressure, dropping 3.91% at the time of writing. The wider altcoin market, including Ethereum, experienced an even steeper decline of 4.75%. The stock market’s drop was largely driven by inflation worries and trade-related uncertainties, while the decline in the crypto market mirrors a broader risk-averse sentiment among investors.
However, Bitcoin’s capacity to maintain critical support levels in the upcoming days will be essential in assessing whether it can separate itself from traditional markets and exhibit resilience.
Historically, Bitcoin has bounced back robustly following steep corrections in equities, often recovering faster than traditional assets. However, it has also encountered sell-offs prior to the stock market declines.
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Looking Ahead: Will Bitcoin Maintain Its Value?
In terms of relative strength, Bitcoin has performed relatively well amid the downturn in U.S. equities.
Back in early November, after Trump’s election win, all risk-on markets, particularly crypto, exhibited significant rallies, largely due to Trump’s pro-crypto stance. Since then, the S&P 500 has retraced its gains from the “Trump Rally” and is now trading below the November lows, while Bitcoin remains above its election low.
Investors should note that Bitcoin has historically moved in sync with other risk-sensitive markets. Nonetheless, it was initially designed as a decentralized alternative to the traditional banking system in response to the 2008 financial crisis.
The critical question now is whether we will witness a shift in this trend, with Bitcoin validating its position as a genuine hedge during economic uncertainty.
There is historical data supporting the notion that Bitcoin frequently experiences strong rebounds or recoveries before the stock market.
A recent example of this strength in Bitcoin can be illustrated by the low formed on the March 11th candle bar.
This marked the lowest point for Bitcoin, while the S&P recorded a lower low on March 13th.
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Concluding Thoughts
Bitcoin has shown considerable strength compared to the stock market during this downturn.
However, that doesn’t imply it can’t decline further.
If equities continue to face challenges, Bitcoin might follow the same path, as historically observed. However, as long as Bitcoin stays above its election low, it retains the potential to sustain its current strength and could experience sharp rallies if equities consolidate or stabilize in the coming weeks.
Monitoring critical support levels and overall market structure will be vital as we navigate this tumultuous period.
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This article titled “Crypto Market Update: As Wall Street Sells Off, Is Bitcoin Demonstrating Strength for the Upcoming Weeks?” first appeared on Benzinga.com
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