The S&P 500 looks “extremely bearish.” How would it impact bitcoin?

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Key Facts: Weakening macroeconomic outlook is a headwind for the S&P 500 price. Bitcoin could benefit from decoupling from risk assets, analyst says. Currently, there is no good prospect for the S&P 500 (SPX), which could impact bitcoin (BTC) due to its correlation. Although the SPX has been on a strong streak until setting new all-time high prices a month ago, like bitcoin, it now looks “extremely bearish.” This was pointed out, in a report on the SPY, by analyst Samuel Smith, who heads the investment group High Yield Investor. The SPY is an exchange-traded fund (ETF) that tracks the performance of the SPX, an index that compiles the shares of 500 large American companies. The investment specialist detailed four reasons why they envision a bearish scenario at this time for the SPY. One of them is that, according to various technical analysis models, it is overvalued. It is 60% above its long-term historical trend line and 1.9 standard deviations from the Buffet Indicator, suggesting possible reversion to the mean. Added to this is that there are currently significant macroeconomic headwinds, with a recession in the United Kingdom, Germany and Japan, while in the United States inflation cannot fall below the 3% zone. This is combined, he adds, with latent geopolitical tensions that They could become an important “black swan” for the SPY. The concept of a black swan refers to an unpredictable and improbable event that has a massive impact on financial markets. Given this challenging context both in the United States and at the macro level, Smith specified that companies could face a drop in their growth. That is why, given this fourth factor, he maintains that everything combines to create a very bearish configuration for the SPY. In this context that discourages the demand for risk assets, analyst Paul Franke stated that “any drop in the price of silver is a gift.” “The multi-year bull market has just begun,” he commented on this precious metal. Historically, In periods of uncertainty and macro crisis, the demand for gold and silver grew, as has happened recently. Gold is now trading at its highest prices in history around $2,300 (USD), while silver at its highest level since 2021. Precisely, the latter is trading for around $26, which is 40% below its historical record of USD 48 registered in 2011.

Bitcoin shows correlation with risk assets

Currently, bitcoin is showing a downward price behavior similar to that of the S&P 500 from a month ago. This is unlike the rising line experienced by gold and silver, as seen below.

Price of bitcoin (orange), S&P 500 (blue), gold (light blue), and silver (yellow). Source: TradingView. In this way, bitcoin currently exhibits a greater correlation to risk assets than to refuge assets in periods of crisis. However, it should be taken into account that this dynamic could change if awareness of the currency's scarcity increases, as has happened on past occasions. As BitcoinDynamic has explained, Bitcoin has bullish fundamentals due to having a limited supply (similar to gold and silver, which are relatively scarce). This is in addition to other fundamentals such as its decentralized issuance power, free transfer and self-custody capacity. Given the achievement two weeks ago of the fourth halving in the history of bitcoin, an event that automatically reduces its issuance by half every four years, a growing narrative is possible around its scarcity. Furthermore, this event per se implies less selling pressure on the part of the coin's miners in the long term, which leads to its rise. In the past, the halving has functioned as a “sell the news” event for temporary profit taking. Therefore, according to analysts, this may be what is currently happening, coupled with the launch of the currency's ETFs this week in Hong Kong, which may have motivated such a scenario. In the medium and long term, with a bullish narrative on bitcoin, the new ETFs in Hong Kong, which joined those launched in January in the United States, could pressure the price upwards, beyond the performance of the S&P 500. Although, thus also, an improvement in the macroeconomic scenario that motivates risk can contribute On it. Kristina Hooper, global market strategist at asset management company Invesco, projects a possible cut in interest rates in the United States in the middle of this year that will boost risk markets, amid a disinflationary trend.