S&P500 Just Hit New All-Time High: What That Could Mean for Bitcoin

S&P500 Just Hit New All-Time High: What That Could Mean for Bitcoin

The S&P 500, a popular American stock market index that tracks 500 powerhouse companies, hit a new all-time high of $2,898.25 USD today, August 27th. What might that dynamic portend for bitcoin? 

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Examining SPX and BTC

The S&P 500 Index and bitcoin both had historic run-ups in the final weeks of 2017. The S&P 500, or SPX, continued on, hitting its first 2018 all-time high of $2,872.87 on January 26th, as bitcoin was amid its slide to $10,000 after the cryptocurrency peaked near $20,000 a month earlier in mid-December.

Today, August 27th, brows were raised anew over SPX hitting another all-time high on the year, having briefly touched above $2,898.25 before the close of the markets.

The S&P 500’s all-time performance. Chart via CNBC.

It’s a milestone that will have some investors hailing a continued bull run. Others will see in the tea leaves a market bubble. For bitcoin, it’s interesting to consider what may happen next.

Another Risk-Off to Risk-On Cycle?

Some pundits in the cryptoverse have been saying the cryptoeconomy will see a bull run to finish out 2018 as was seen in the second half of 2017.

Maybe. Maybe not. But let’s take a closer look.

For the U.S. stock market as 2017 came to a close, it’s clear investors’ appetite for risk was generally high as equities soared. There was a so-called “risk-on” environment afoot, which was also seen in the cryptoeconomy as the fledgling ecosystem’s market cap exploded to unprecedented heights at the peak of last year’s ICO craze.

As for crypto, the 2018 bear market has seen an acute return of the “risk-off” environment in the space, while the S&P 500 began turning bearish this summer and seemed as if it might be heading decisively toward “risk-off” sentiment. Now that SPX has turned the other way with today’s new high, it’s an indication that an appetite for risk may be returning — and some of that appetite could be coming back to crypto.

In June, Forbes contributor Naeem Aslam speculated that a sizeable chunk of crypto investors “moved their cash from crypto […] to traditional markets” back in the spring. With new SPX gains under their belts, some of these market migrants might look to bitcoin once more.

Last week, Fundstrat co-founder Tom Lee posited that the MSCI Emerging Markets Index, which tracks the performance of 24 emerging markets, was an indicator for bitcoin’s price. Lee cast his argument in terms of “risk-on risk-off” investment strategies, wherein funds flee risk (crypto, MSCI EM) during market chop and return on sunnier days.

It’s possible that a new risk cycle is beginning then, with SPX perhaps pointing the way. Only time will tell for now. On the flip side, the MSCI EM Index has started to apparently sag into a into a bear market, so, as always, the future remains unclear. Lee even thinks the EM’s recent under-performance against the S&P 500 could signal that a global recession is nigh.

If that’s the case, “risk-off” may be par for the course in crypto for years to come.

To Correlate, or Not to Correlate

Back in May, an analyst going by the handle BarclayJames highlighted that bitcoin seems to swing in and out of correlating with SPX.

Chart via BarclayJames. The green blocks show periods of BTC-SPX correlation since 2014. Note the correlation in 2018.

In the chart above, bitcoin is seen as then correlating positively with SPX in recent months. In the chart below from the same analyst, there also seems to be general correlation between the two as the last decade has taken shape.

Chart via BarclayJames. The yellow line is BTC’s performance over the last several years. The green is the S&P 500. A general relationship seems apparent.

Of course, it’s impossible to say with certainty what comes next. But “risk-on” might be back on. And, with the cryptoeconomy typifying risk this early on in its lifespan, bitcoin might be in for a boon. Bitsonline’s own resident technical analyst Ramiro Burgos outlined in his latest piece the possible “first signal of a new upward cycle.”

We’ll all have to wait and see.

What’s your take? Do you think things will stay bearish for bitcoin, or is a bull run nigh? Let us know what you think in the comments below.

Images via CNBC, BarclayJames, Pixabay

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