There is a link between broader cryptocurrency and the US Stock Market, although the correlation may not be super strong. Often when one goes up, the other goes up too and if Bitcoin does go up, altcoins follow too, although there is some delay. But if the US stock market falls into recession, could it affect Bitcoin and the broader crypto market? Read on to know more.
Bitcoin (BTC) price witnessed a deadly crash in the first week of August. Last week, BTC crashed by 7%, but currently trades at a key psychological level. A critical matter of worry is the US stock market showing signs of exhaustion, which could impact BTC and the broader financial markets.
A recession in US markets would hurt both the stock market and the crypto sector. Additionally, an unexpected outcome in the upcoming US elections could also trigger a market decline.
Bitcoin’s Correlation With The US Stock Market
Although BTC is considered an uncorrelated asset, it has a positive correlation with the US stock markets and liquidity cycles. Bitcoin price is also very sensitive to the macroeconomic policies of the West.
In the third quarter of 2007, the S&P500 Index had sparked two signals, a swift v-shaped recovery and bearish divergences, that hinted at a reversal. Just before the US Federal Reserve’s rate cut decision on September 18, the S&P500 Index recovered the losses v-shaped, displaying fake strength before the financial markets collapsed.
Notably, the Fed is expected to decide on the interest rates on September 18, similar to 2007. Also, the S&P500 saw a similar v-shaped recovery between August 5 and 30.
Why Bitcoin Crash Is Probable?
With the Bitcoin price consolidating below the 2021 ATH for the sixth straight month, the chances of a Bitcoin crash are high. Additionally, the S&P500 index is showing signs that were last seen in early September 2007, which led to a recession. If history repeats itself, a panic selling craze effect could be triggered, impacting Bitcoin price.
Moreover, the Nonfarm Payrolls on September 6, coupled with the Fed interest rate decision on September 18, will play a key role. The first sign of recession in early August caused the S&P500 to plunge nearly 10% while Bitcoin crashed 30%. Therefore, investors could expect another fatal correction if the NFP event on September 6 is perceived as a weak economic outlook for the US.
Strong NFP Data Could Reflect Bullish Sentiment
However, if the NFP data reveals a strong jobs market and the Fed cuts interest rates on September 18, it could reflect bullish sentiment, resulting in a shoot in BTC price. Such a development could take BTC to the psychological $70,000 level and might even take it to a new ATH above $80,000.
What do you think? Will the macro-economic data turn to be in favor of the broader market and Bitcoin or another deadly crash is looming? Stay tuned to know more.