Bitcoin isn’t the only cryptocurrency facing challenges. Investors are expressing concern as the leading cryptocurrency has mirrored the recent decline of the S&P 500. However, historical trends suggest that Bitcoin could be on the verge of a comeback.
After being re-elected in November, US President Donald Trump has seen the stock market drop by approximately 10%. This marks the worst start to a US presidency since the global recession hit in 2009. Varied factors have led to this downturn, with economic uncertainty and inflation worries being significant contributors.
Historically, simultaneous declines in the S&P 500 and Bitcoin have indicated potential volatility ahead. The bear market of 2022 witnessed both markets suffering substantial losses together. It’s important to note, however, that not every dip results in long-term downturns; some have resulted in significant rebounds, particularly aligned with the cryptocurrency’s halving cycles.
How is the market responding to Trump’s presidency?
Since his return, the S&P 500 has decreased by 9%, marking the poorest start to a presidency since 2009.
In contrast to 2009, when a recession propelled the decline, this time uncertainty is at the wheel.
Let’s delve into the data pic.twitter.com/A10F0qtweB
Bitcoin And Stocks Correlate—For The Time Being
Historically referred to as “digital gold,” Bitcoin is now behaving more like a tech stock. Data from CryptoQuant indicates Bitcoin’s price has closely followed traditional markets, particularly the S&P 500. This trend isn’t unprecedented; during the COVID-19 pandemic in March 2020, both crypto and stock markets fell together before staging a recovery later that year.
However, analysts from IntoTheBlock noted that Bitcoin’s correlation with the S&P 500 has decreased to near-zero. This suggests that, in line with patterns among long-term holders, Bitcoin might be starting to detach from traditional financial markets.
If this trend of decoupling persists, Bitcoin’s price movements could become less influenced by fluctuations in the stock market.
Historical Patterns Indicate Potential Recovery
As per CryptoQuant’s research, historical data shows that Bitcoin typically experiences rebounds after significant corrections. For instance, Bitcoin lost around 80% of its value in 2018 before making a recovery in 2019. Similarly, after the crash in 2020, Bitcoin reached new all-time highs in 2021.
Another key metric to observe is the Coinbase Premium Index, which tracks the pricing differences between Bitcoin on Coinbase and Binance. A negative reading followed by a return to positive territory has historically indicated an imminent price recovery.Analysts Maintain Caution Yet Hold Optimism
Several market analysts remain split in their views. Some caution that Bitcoin’s downturn could foreshadow an unsustainable rise in the overall stock market. Tyler Richey, co-editor of Sevens Report Research, articulated that Bitcoin’s underwhelming performance compared to its peak in January might serve as a warning signal for equities.
Featured image from Gemini Imagen, chart from TradingView
