Traditional market investors looking for hints of a potential bearish-to-bullish trend change in U.S. stocks should keep a close eye on bitcoin.
The leading cryptocurrency by market value tends to lead major stock market bottoms by at least six weeks, analysis of past data by Delphi Digital shows.
"History shows that, on average, BTC has topped ~48 days and bottomed ~10 days before the SPX [S&P 500]," Delphi's strategists, led by Kevin Kelly, wrote in a 2023 preview sent to clients on Wednesday. "Over the past five years, all major price reversals in BTC have preceded those in major equity indices."
It shows bitcoin and cryptocurrencies, in general, are looked upon by investors as more risky assets than stocks. As Brookings Institutions' Eswar Prasad noted last year, bitcoin has become a speculative investment.
While corporate fundamentals and macroeconomic factors directly impact stocks, the crypto market is yet to develop strong links with the global economy. Digital assets, until now, have proved to be narrative-driven, with valuations 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.
"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," Delphi's strategists noted.
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.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.