How Will Crypto Market React To Stock Market Hitting New ATH?

The crypto market almost immediately reacted to the fact that the S&P 500 hit a record high amid expectations of fewer Fed rate cuts and a strong US economy.

Even if the CPI comes in higher than expected, it is unlikely to disrupt Wall Street’s bullish trend, though it could cause a temporary dip at the peak.

Bitcoin was up more than 5% today at 62,926 dollars. Meanwhile, the S&P 500 reached an all-time high of 5,819 and is trading at 5,809.

S&P 500’s Historic Gains Fuel Crypto Market Boom

This rally in Bitcoin and the overall crypto market coincides with impressive gains in traditional assets: the S&P 500 recorded its strongest year-to-date performance in 24 years, up more than 22%.

The S&P 500 had gained an astonishing $13 trillion market capitalization over the past year. On its current trajectory, the index is on course for a 30% gain in 2024, which would be its best annual return since 1997.

This is the most resilient market in history:

The S&P 500 is now up over 22% this year, marking the best year-to-date performance in 24 years.

This is already DOUBLE the average annual return since 1957.

In one year, the index has added a whopping $13 trillion in market cap.… pic.twitter.com/PzADrMFaUH

— The Kobeissi Letter (@KobeissiLetter) October 11, 2024

During this more extended bullish outlook, Bitcoin has gained once again after a brief fall following the results of the latest CPI. It was down from $59,000 to a peak of $62,400, extending its crypto market capitalization above $1.23 trillion.

Analysts continue to monitor the critical price levels. According to them, at $63,900, the most likely breakout for the cryptocurrency is viewed, while resistance may be around $65,000. This comes when, on the other hand, a slide below the level of $60,200 pinpoints signals yet another pullback for traders.

The cumulative impulse-response test shows that cryptocurrency returns positively respond to a shock in the historical S&P 500 returns. On the other hand, a shock in historical crypto returns results in a negative response to S&P 500 returns.

In this respect, empirical evidence suggests a two-way causality between S&P 500 returns and crypto returns, thus indicating mutual coupling between the two markets. One can observe that the spillover effects of S&P 500 returns to crypto returns are more significant than vice versa.

Thus, this evidence goes against the fundamental premise that cryptocurrencies act as a hedge and a diversification instrument in diminishing risk exposure in asset portfolios.

Inflation Concerns Drive Bitcoin’s Value Amid Fed’s Easing

Today’s hotter-than-expected US PPI adds to inflationary pressures and boosts Bitcoin’s status as a hedge asset. The September PPI came in at 1.8%, higher than expected at 1.6%, adding to concerns of sticky inflation for the Fed.

These inflation concerns somewhat offset the Fed’s latest interest rate cut by 0.5% and gave fresh legs to equities and cryptocurrencies. Investors are now keenly watching the FedWatch Tool for further rate cuts, with an 88% likelihood of a further 25 bps cut this November.

With the S&P 500 still at record highs, Bitcoin price also gained some lost ground, reflecting broader crypto market optimism. Yet market watchers remain cautious, fearing volatility that may be associated with future Fed decisions.