Bitcoin Price Correlation To Stock Markets Has Increased In Recent Months

Bitcoin has fallen back from its recent highs as traders scale back bets on Federal Reserve interest rate cuts and huge stimulus measures out of China fall short of market expectations.

A closely-watched bitcoin stock market indicator has crashed back toward $60,000 per bitcoin after touching $70,000 over the summer.

Now, as “crazy” Federal Reserve predictions push the S&P 500, the Dow and the Nasdaq stock market indices back to their record highs, analysts are warning “something’s got to give” as bitcoin price sentiment plummets into “fear” territory.

Bitcoin, a leading stock market indicator that’s closely watched for signs of stock market corrections, has fallen back this week despite JPMorgan analysts (NYSE:JPM) tipping the bitcoin price for a $7.5 trillion earthquake.

The bitcoin price, which has doubled over the last year amid fears fanned by Elon Musk that the U.S. could collapse into bankruptcy, has crashed back toward $60,000 per bitcoin after touching $70,000 over the summer.

Now, as “crazy” Federal Reserve predictions push the S&P 500, the Dow and the Nasdaq stock market indices back to their record highs, analysts are warning “something’s got to give” as bitcoin price sentiment plummets into “fear” territory.

Federal Reserve chair Jerome Powell last month began an interest rate cutting cycle that’s already boosted the S&P 500, the Dow Jones, the Nasdaq and the bitcoin price. Following Federal Reserve chair Jerome Powell announcing a 50 basis point interest rate cut last month, meeting minutes have shown officials were at odds over the decision.

Traders could be left scrambling if consumer price index (CPI) data due at 8:30am on Thursday misses the steady 3.2% year-on-year reading expected by a Reuters poll of economists.

“Something’s got to give, and both stocks and bonds could be vulnerable if expectations are disappointed,” Lisa Shalett, Morgan Stanley (NYSE:MS) Wealth Management’s chief investment officer, warned in a Monday note to clients seen by Fortune, pointing to the market still pricing in Federal Reserve interest rate cuts usually seen in recessions.

Markets are now pricing in a more than 80% chance of a 25 basis point cut next month, the CME FedWatch tool showed, after the hot U.S. jobs report last week torpedoed expectations of a second 0.5% cut.

“I am getting increasingly queasy about the fact that the equity market keeps on pricing in a soft landing,” JPMorgan (NYSE:JPM) Asset Management’s David Kelly told Business Insider, warning investors “should dial back” exposure to risk assets such as bitcoin.

Last month, Mark Spitznagel, founder and chief investment officer of Universa Investments, warned a broad market crash is about to hit gold, stocks and the bitcoin price.

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The bitcoin price has surged this year, climbing along with S&P 500, Dow and Nasdaq stock markets, but sentiment has now fallen into “fear” territory.

“Gold is going to go down, cryptocurrencies will go down along with risk assets,” Spitznagel told Bloomberg, putting the stock market, bitcoin and gold in “black swan territory”—referring to sudden, unexpected shocks that can wipe out traders.

Bitcoin price correlation to stock markets has increased in recent months, with data from The Block showing bitcoin is trading in sync with the S&P 500 and the Nasdaq indices.

The bitcoin price has fallen back from its recent highs as traders scale back bets on Federal Reserve interest rate cuts and huge stimulus measures out of China fall short of market expectations.

“Crypto sentiment has moved back into the fear zone,” Alex Kuptsikevich, FxPro senior market analyst, wrote in an emailed note, pointing to the closely-watched bitcoin fear and greed index that has dropped sharply this week.

“Volatility risks for the financial market will revolve around the monthly U.S. inflation report in case it deviates from expectations. For bitcoin, this is enough to both break support and start a new rally.”