In recent times, Bitcoin’s price movements have shown a remarkable alignment with the fluctuations of the US equity markets, particularly the Nasdaq and S&P 500 indices. As we observe a dramatic shift in sentiment among fund managers—marked by a record sell-off of US stocks—the pertinent question arises: is Bitcoin poised to be the next asset affected by this whirlwind?
Fund Managers’ Historical Exodus from US Equities
According to Bank of America’s latest survey, a staggering 40-percentage-point reduction in exposure to US equities was recorded between February and March, representing the most significant monthly decline since the firm began tracking this data in 1994. This shift, termed a ‘bull crash,’ underscores diminishing confidence in the US economy’s ability to outperform amidst rising global recession anxieties.
A net 69% of fund managers have acknowledged the end of what they term ‘US exceptionalism.’ This seismic shift in market sentiment is likely to influence risk assets such as Bitcoin, particularly given the historical 52-week positive correlation between Bitcoin and the S&P 500.
Bitcoin and S&P 500 index 52-week correlation coefficient chart. Source: TradingView
Further compounding the risks for Bitcoin and the broader cryptocurrency market are the increasing cash allocations observed among investors. Reports indicate that cash levels have surged to 4.1% from February’s 3.5%, the highest seen since 2010, suggesting a classic flight-to-safety approach.
BofA Global Fund Manager March survey results. Source: BofA Research
As fears of global recessions mount, with 55% of managers identifying “Trade war triggers global recession” as their top concern, and 19% expressing anxiety over inflation leading to Federal Reserve rate hikes, enthusiasm for high-risk assets like Bitcoin could be dulled.
Despite these concerns, Bitcoin remains among the crowded trades, with a consistent 9% of managers supporting “Long crypto,” parallel to the establishment of the Strategic Bitcoin Reserve in the US. Additionally, a significant 68% of managers anticipate Fed rate cuts by 2025, which has historically led to gains in Bitcoin and other cryptocurrency markets.
Bitcoin’s Current Price Dynamics
Despite witnessing a decline of over 25% shortly after achieving a record high of nearly $110,000, Bitcoin’s trajectory remains uncertain. Market analysts consider this drop to be a normal correction for a bull market, suggesting potential recovery in the months ahead. Derive founder Nick Forster pointed out that Bitcoin typically experiences such corrections during extended rallies, yet its future performance will largely hinge on traditional market outcomes.
As of March 19, Bitcoin was holding above its 50-week exponential moving average, which is a crucial support level. Historically, price corrections towards this moving average have preceded strong rallies, while decisive breaks below could signal bearish trends, as seen in previous downturns in 2018 and 2022.
BTC/USD weekly price chart. Source: TradingView
Should Bitcoin maintain its position above the 50-week EMA, it could open up the possibility of testing the psychologically significant resistance level of $100,000. Conversely, a breakdown could have bearish implications, pushing traders’ eyes towards the 200-week EMA below $50,000.
In conclusion, while the current market sentiment surrounding US equities presents challenges for Bitcoin, its future remains intertwined with the broader economic landscape and traditional market movements. Investors are encouraged to remain vigilant and informed as these dynamics continue to unfold.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
