How Will Crypto Market React To Stock Market Hitting New ATH?

As a seasoned analyst with over two decades of experience in the financial markets, I have seen my fair share of bull and bear runs. However, the current market dynamics are truly remarkable, especially the interplay between traditional assets like the S&P 500 and cryptocurrencies such as Bitcoin.

Without delay, the cryptocurrency market showed a swift response as the S&P 500 reached an all-time peak due to anticipation of fewer interest rate adjustments by the Federal Reserve and a robust American economy.

If the Consumer Price Index (CPI) exceeds predictions, it might not be enough to halt Wall Street’s ongoing bullish run. However, there could be a brief downturn at the highest point as a result.

Today, Bitcoin surged past the $62,926 mark by over 5%, while the S&P 500 achieved a record high of 5,819 points and is currently being traded at 5,809.

S&P 500’s Historic Gains Fuel Crypto Market Boom

The surge in Bitcoin and other cryptocurrencies is happening at the same time as significant increases in conventional assets. For example, the S&P 500 has shown its best year-to-date growth in 24 years, with a rise of over 22%.

Over the last year, the S&P 500 has experienced a remarkable increase in market value, reaching approximately $13 trillion. If this trend continues, it’s projected that the index will achieve a 30% growth by the year 2024, marking its strongest annual performance since 1997.

This is the most resilient market in history:

The S&P 500 is now up over 22% this year, marking the best year-to-date performance in 24 years.

This is already DOUBLE the average annual return since 1957.

In one year, the index has added a whopping $13 trillion in market cap.…

— The Kobeissi Letter (@KobeissiLetter) October 11, 2024

In this prolonged period of optimism for Bitcoin, it has rebounded following a temporary dip after the release of the latest Consumer Price Index data. Its value dropped from approximately $59,000 to a high of around $62,400, increasing its cryptocurrency market capitalization above $1.23 trillion.

Analysts are keeping a close eye on key price thresholds. They believe that the cryptocurrency is most likely to burst through at approximately $63,900, while potential resistance could be found around $65,000. Conversely, a drop below $60,200 suggests further retracement for traders.

In simpler terms, the accumulated impact-reaction test indicates that the value of cryptocurrencies tends to rise when there’s a significant change in the performance of the S&P 500 in the past. Conversely, a major fluctuation in the historical value of cryptocurrencies typically leads to a decrease in the S&P 500’s performance.

In summary, it appears that there’s a reciprocal influence, or causality, between the returns of the S&P 500 and cryptocurrencies. This suggests a strong connection between these two markets. It’s worth noting that the impact of S&P 500 returns on crypto returns seems to be more pronounced than the reverse.

Indeed, my findings contradict the basic assumption that cryptocurrencies function as a protective measure and a means of diversification, reducing risk exposure within investment portfolios. Instead, it seems that their inclusion may not always provide the anticipated risk-mitigating benefits.

Inflation Concerns Drive Bitcoin’s Value Amid Fed’s Easing

Today’s unexpectedly high U.S. Producer Price Index (PPI) contributes to rising inflation concerns and strengthens Bitcoin’s role as a safe-haven asset. The PPI for September was recorded at 1.8%, higher than anticipated, which intensifies worries about persistent inflation for the Federal Reserve.

The recent reduction in interest rates by the Fed by 0.5% may not completely alleviate inflation worries, but it has provided a boost to stocks and cryptocurrencies. Investors are closely monitoring the FedWatch Tool for future rate adjustments, as there is an 88% probability of another 25 basis point cut in November.

Even though the S&P 500 continues to reach new peak levels, Bitcoin has managed to regain some of its previous value, which mirrors overall confidence in the crypto market. However, analysts are staying vigilant, concerned about potential volatility that could stem from future Federal Reserve decisions.