While many investors have betted on crypto to correlate with stocks, a recent report shows that traditional market investors waiting for a bullish sign must keep a close eye on Bitcoin.
The analysis of past data by Delphi Digital, an independent research firm providing institutional-grade analysis on the digital asset market, indicates that the largest crypto by market capitalization tends to lead major stock market bottoms by at least six weeks.
Delphi’s report studying the historical data revealed that “History shows that, on average, BTC has topped ~48 days and bottomed ~10 days before the SPX [S&P 500].”
The S&P 500, also known as The Standard and Poor’s 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.
On Wednesday, Kevin Kelly, leading the Delphi strategists, wrote in a 2023 preview report sent to the clients that the major price reversals in Bitcoin for a long time have preceded major equity indices. The statement read:
“Over the past five years, all major price reversals in Bitcoin have preceded those in major equity indices.”
Thus this reveals that investors consider Bitcoin and cryptocurrencies, in large, to be more risky assets than stocks. Last year, Eswar Prasad from Brookings Institutions, an American research group, opined that Bitcoin had become a speculative investment.
While corporate fundamentals and macroeconomic factors directly affect stocks, the crypto sector is yet to develop strong links with the global economy.
As of now, digital assets are more narrative-driven, with their values highly depending on the pace of expansion in fiat currency supply. The factors affecting it include the U.S. dollar and inflation rate, which also influence the Federal Reserve policy.
Delphi’s strategists noted in their report that “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.”
The graph below gives us an idea of the pattern Bitcoin and SPX have followed over the years.
Looking at the graph, we can conclude that Bitcoin peaked on November 11, 2021, at $69,000, 55 days before the S & P 500, topped at 4,818 on January 4 this year. Likewise, the index’s early 2018 top can be spotted 42 days after Bitcoin’s bull run stopped at $20,000.
Similarly, the cryptocurrency bottomed out 11 days and eight days before the S&P 500 did on March 23, 2020, and December 24, 2018, respectively.
In October, Mike McGlone, the head commodity strategist at Bloomberg Intelligence, opined that Bitcoin would restore its image as a value store and increase faster than the S&P 500 index.
In November this year, Michael Saylor, co-founder of MicroStrategy, tweeted that he prefers Bitcoin as it has shown to outperform other indices like Nasdaq, S&P 500, golds, bonds, etc.