Why Stocks May Send Bitcoin Price Back to $50K Before October
Bitcoin’s price has recently rebounded, climbing back to the $61,000 mark as the S&P 500 index hits a new all-time high. This movement comes just before the Federal Open Market Committee (FOMC) meeting and anticipated interest rate cuts. The strong correlation between Bitcoin and major U.S. stocks provides insight into potential market behavior following these economic events.
S&P 500’s Short-Term Bearish Outlook Post-FOMC
The S&P 500 index is a crucial indicator of the U.S. stock market’s overall performance, representing a broad spectrum of companies across various sectors. As of June 2024, the index was valued at $45.84 trillion. Recently, it surged to a new high of 5670, just a day before the FOMC meeting. Traders are expecting a 0.50% rate cut, but history suggests that such cuts often lead to short-term declines in the SPX index.
Since 1984, the U.S. Federal Reserve has implemented rate cuts ten times, with the SPX showing negative returns 60% of the time in the following month. The last two rate cuts in 2019 and 2020 also triggered immediate market corrections. Therefore, while a rate cut might be anticipated, it could still result in a short-term downturn for the SPX.
Rising Correlation Between Bitcoin and Stocks
Bitcoin and the S&P 500 have shown strong correlation trends, particularly visible during the bull market in 2021. In the first quarter of 2024, both assets hit new yearly highs, with their correlation coefficient (CC) rising significantly. Currently, the CC between Bitcoin and the SPX stands at 0.88, indicating that they are likely to move in tandem post-FOMC meeting.
If the SPX experiences a decline following the rate cut, Bitcoin is expected to mirror this movement. Bitcoin’s immediate target range could drop to $54,000, where a CME futures gap was created earlier in September. A more significant pullback could even see Bitcoin’s price fall to the $48,880 mark, a previous low.
Potential Gains for Bitcoin in Q4
Despite the possible short-term bearish scenario, the outlook for Bitcoin and the S&P 500 over the longer term is more optimistic. Historical data shows that the SPX has registered positive returns over three-, six-, and twelve-month periods in non-recessionary periods, such as those seen in 1990, 2001, and 2007. Current data from Franklin Templeton indicates that the risk of a recession remains low, suggesting that the U.S. economy is on a path to recovery.
If the economy can avoid a recession, the SPX is likely to overcome any short-term volatility from rate cuts and continue its bull market trend. This scenario would be favorable for Bitcoin, potentially leading to gains in the fourth quarter.
This article does not constitute investment advice. All investments and trading decisions involve risk, and readers should conduct their own research.
