After reaching its highest point on March 28, the S&P 500 has experienced a decline, falling below the 5,150-point threshold on April 12. During the same period, the price of Bitcoin (BTC) has also reacted negatively. It is worth analyzing whether the factors driving the stock market correction also apply to cryptocurrencies.
The S&P 500 index has experienced a 2.9% dip from its peak of 5,333. While this may seem like a small decline, it is the first time in four weeks that the U.S. stock market index has traded below 5,120. The persistently high inflation has led investors to doubt the Federal Reserve’s ability to effectively lower interest rates until 2024.
The rise in inflation and the tightening of U.S. Federal Reserve monetary policy are the main drivers of this decline. On April 12, major U.S. financial institutions such as JPMorgan and Wells Fargo reported a 4% drop in quarterly net interest income. This reflects the difference between what banks earn on their assets and what they pay to customers. This issue is similar to the challenges faced by smaller banks in 2023.
JPMorgan’s CFO, Jeremy Barnum, noted that customers are shifting from traditional savings accounts to higher-yielding alternatives like certificates of deposit (CDs). This explains why JPMorgan’s stock fell 5.7% on April 12, despite a 6% increase in net profits year-over-year for the first quarter. JPMorgan CEO Jamie Dimon also highlighted the risks posed by geopolitical tensions and further quantitative tightening by the Federal Reserve.
The main reason for today’s stock market downturn is persistent inflation, which has prompted the central bank to maintain higher interest rates, leading to reduced liquidity. However, this situation could be seen as positive for Bitcoin, as the cryptocurrency, like gold, benefits from being a scarce asset. Gold reached an all-time high of $2,431 on April 12, but this alone did not raise concerns in the market.
On April 10, the yield on the U.S. Treasury 5-year note reached its highest level in five months, indicating investor dissatisfaction with returns below 4.5% in light of the inflation outlook. This has two major consequences: first, the government faces higher costs when refinancing its debt; second, companies are discouraged from hiring and expanding due to more attractive fixed-income returns.
As gold prices rise and investors seek higher yields in U.S. Treasurys, it indicates a lack of confidence in the economies. Under these conditions, advocating for Bitcoin investments is challenging, regardless of inflation trends. Only a minority of market participants view Bitcoin as a safe haven, making it speculative at best to suggest that the cryptocurrency could thrive during a stock market downturn.
In addition to the stricter monetary policies of the Federal Reserve and the dwindling confidence in the U.S. economy, China is now a significant source of concern due to troubles in its real estate sector and disappointing foreign trade figures. China reported a 7.5% decrease in exports year-over-year in March, a more severe drop than the 2.3% decline forecasted. Analysts are worried about overcapacity in some Chinese industries and do not expect a rapid recovery soon, largely due to the ongoing crisis in the property sector.
On April 10, Fitch’s rating agency downgraded China’s sovereign credit rating to negative as the country plans to issue $138 billion in long-term bonds to stimulate economic growth. Banks in China reported bad loan property ratios as high as 5% at the end of 2023. Some of the largest real estate developers in the area, including Evergrande and Country Garden, have recently declared bankruptcy.
China introduces significant uncertainty into global markets, but its impact on Bitcoin prices remains uncertain. Nevertheless, it would be overly optimistic to expect investors to increase their cryptocurrency holdings if the S&P 500 continues to decline.
This article is for informational purposes only and does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research before making a decision.