Bitcoin fell on Monday, stirring up concerns that a broader stock market downturn could soon follow. The world’s largest cryptocurrency by market capitalization was last trading at $91,529, or roughly 2.9% lower on the day, reversing its recovery from its six-month-low price hit on Friday. The S & P 500 was last trading 1.3% lower on the day. Bitcoin’s price action is a “leading indicator” for U.S. stock market trends, eToro analyst Bret Kenwell told CNBC. So, if bitcoin’s drop-off steepens, U.S. equities are also likely to plunge deeper into the red, he said. “In the short-term … a sustained break of the $90,000 level could usher in more selling pressure and bearish momentum,” Kenwell said. “That could also weigh on other risk assets — like U.S. equities — exacerbating the pullback we’ve seen.” Bitcoin has plunged 13% over the past week, while the S & P 500 has fallen 2.8% in that period. Many investors in artificial intelligence stocks — which make up a big portion of the the S & P 500’s total market cap — hold the largest cryptocurrency by market capitalization in their portfolios. That links crypto with the broader U.S. equity market. Given their link, analysts are watching the token to gauge whether the stock market is poised to continue its losing streak. Greg Magadini, director of derivatives at crypto-focused data analytics firm Amberdata, said bitcoin could be headed for a steeper decline in the near-term, particularly as difficult credit market conditions and bearish sentiment among investors spell trouble for some of the largest holders, including Strategy. “If the markets turn bearish all at once, bringing AI and crypto prices down while the credit market simultaneously freezes up, [digital asset Treasurys] won’t be able to refinance their debt and may become forced sellers of their crypto holdings,” Magadini told CNBC. “This can trigger a cascade of price decreases.” Adding to those concerns, the Federal Reserve may not cut is overnight benchmark rate at its December meeting, Magadini noted. Traders are pricing in a 55% chance of the Fed keeping rates steady, per the CME Group’s FedWatch tool. The absence of another rate cut could “further complicate the [borrowing] environment,” leading to more losses among digital assets and stocks, the analyst said. Bullish near term? Others on Wall Street, however, pointed to several reasons to be bullish on bitcoin — even in the near-term. “Institutional (and eventually sovereign) ownership of Bitcoin is a structural long-term trend and the current price action reflects a shallow and short-term correction,” Bernstein analyst Gautam Chhugani said Monday in a note to clients, adding that most secondary market selling has so far been well absorbed. That “higher quality and consistent ownership” of bitcoin via exchange-traded funds could boost the asset, the analyst noted. And, the expected passing next year of a U.S. crypto market structure bill gives traders an additional reason to be optimistic about the token’s potential to grow despite its recent pullback. Bitcoin’s fundamentals also remain strong, which should protect its price from further declines, eToro’s Kenwell added. “Overall, the fundamentals remain solid for bitcoin and the recent price action points toward a correction amid consolidation, rather than a structural break,” he said.
Bitcoin is under pressure. Why that could spell trouble for U.S. stocks
