After reaching a record high on March 28, the S&P 500 has stumbled, falling below the 5,150-point mark on April 12. Bitcoin (
BTC
) price has also reacted negatively during the same period, so it is worth examining whether the factors driving the stock market correction also apply to cryptocurrencies.
The S&P 500 index has experienced a 2.9% decline from its peak of 5,333, which may not seem significant, but it is the first time in four weeks that the U.S. stock market index has traded below 5,120. Persistent inflation has raised doubts among investors about the Federal Reserve’s ability to effectively lower interest rates until 2024.
The rise in inflation and the Federal Reserve’s tighter monetary policy are the main drivers behind this. On April 12, major U.S. financial institutions such as JPMorgan and Wells Fargo reported a 4% drop in quarterly net interest income. This figure represents the difference between the earnings banks make on their assets and what they pay to customers. This issue is reminiscent of the challenges faced by smaller banks in 2023, as reported by Yahoo Finance.
JPMorgan’s CFO, Jeremy Barnum, pointed out that customers are shifting from traditional savings accounts to higher-yielding alternatives like certificates of deposit (CDs). This shift helps explain why JPMorgan’s stock fell by 5.7% on April 12, despite a 6% increase in net profits for the first quarter compared to the previous year. Additionally, JPMorgan CEO Jamie Dimon highlighted the risks posed by geopolitical tensions and further quantitative tightening by the Federal Reserve.
The primary reason for the current stock market downturn is persistent inflation, which has led the central bank to maintain higher interest rates, thus reducing liquidity. However, this situation could be seen as positive for Bitcoin, as the cryptocurrency, like gold, benefits from being a scarce asset. Gold reached a record high of $2,431 on April 12, but this alone did not cause market concerns.
On April 10, the yield on the U.S. Treasury 5-year note reached its highest level in five months, indicating investor dissatisfaction with returns below 4.5% in light of the inflation outlook. This situation has two major consequences: firstly, the government faces higher costs when refinancing its debt; secondly, companies are discouraged from hiring and expanding due to more attractive fixed-income returns.
As gold prices rise and investors seek higher yields in U.S. Treasurys, it indicates a lack of confidence in the economies. Under such conditions, advocating for Bitcoin investments is challenging, regardless of inflation trends. With only a minority of market participants viewing Bitcoin as a safe haven, suggesting that the cryptocurrency could thrive during a stock market downturn is speculative at best.
The global economy could suffer if China’s economic growth weakens. In addition to stricter Federal Reserve monetary policies and diminishing confidence in the U.S. economy, China is now a significant cause for concern due to issues in its real estate sector and disappointing foreign trade figures. China reported a 7.5% year-over-year decrease in exports in March, a more significant drop than the forecasted 2.3% decline, according to Yahoo Finance. Analysts are worried about overcapacity in certain Chinese industries and do not anticipate a rapid recovery, largely due to the ongoing crisis in the property sector.
On April 10, Fitch’s rating agency downgraded China’s sovereign credit rating to negative as the country plans to issue $138 billion in long-term bonds to stimulate economic growth. Bloomberg reported on March 28 that banks in China reported bad loan property ratios as high as 5% at the end of 2023. Some of the largest real estate developers in the region, including Evergrande and Country Garden, have recently declared bankruptcy.
China introduces significant uncertainty into global markets, but its impact on Bitcoin prices remains uncertain. However, it would be overly optimistic to expect investors to increase their cryptocurrency holdings if the S&P 500 continues to decline.
This article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making a decision.