S&P 500 and Bitcoin Dip: Deciphering the Impact of Inflation and Global Economics
Summary:
The S&P 500 and Bitcoin both experienced drops since hitting record highs, leading analysts to consider common correction drivers. Inflation concerns, shifts in savings habits, and China's economic slowdown have challenged the U.S. financial institutions and the overall market. While Bitcoin might benefit from its scarcity much like gold, advocating Bitcoin during economic instabilities remains challenging. The effects of China's economic state on Bitcoin prices remain uncertain, making it risky to predict an increase in cryptocurrency investment amidst potentially further market decline.
On April 12, the S&P 500 sank below the 5,150-point mark after hitting a record high on March 28. During the same period, the price of Bitcoin (BTC) also took a hit, raising questions whether the factors affecting the stock market correction are impacting cryptocurrencies as well. Over the last four weeks, the S&P 500 index had not fallen below 5,120, but now it's experiencing a 2.9% drop from its 5,333 peak. This is largely due to concerns about the Federal Reserve's capacity to decrease interest rates amidst constantly high inflation.
On the same day, leading American banks like JPMorgan and Wells Fargo reported a 4% decline in their quarterly net interest income, mirroring issues that smaller banks grappled with in 2023. Customers have been moving their funds from traditional savings accounts to more profitable alternatives such as certificates of deposit (CDs); this change contributes to the 5.7% fall of JPMorgan's stock on April 12, despite a 6% rise in net profits for Q1 year-on-year.
Unrelenting inflation is the main cause for the current stock market slump, leading the central bank to keep interest rates high which in turn, reduces liquidity. This could have a silver lining for Bitcoin. Much like gold, Bitcoin could benefit from being a limited commodity. Gold hit a record high of $2,431 on April 12, which didn't raise any market alarm.
When yields from U.S. Treasury 5-year note reached a five-month high on April 10, it underscored investors' annoyance with returns below 4.5%, considering the inflation forecast. This has two main consequences: firstly, it increases government debt refinancing costs and secondly, it discourages businesses from hiring or expanding due to better fixed-income returns.
With gold prices on the rise and investors turning to U.S. Treasurys for better yields, it suggests a lack of faith in the economy. This makes advocating for Bitcoin investments difficult, irrespective of inflation trends. Only a small section of the market views Bitcoin as a safe investment, making suggestions about the cryptocurrency thriving during a stock market crash highly speculative.
Besides more stringent Federal Reserve monetary policies and decreasing confidence in the U.S. economy, China's troubling real estate sector and subpar foreign trade figures also pose significant concerns. In March, China's exports dipped by 7.5% year-on-year, more than the predicted 2.3% decline. Analysts are worried about an overcapacity in some Chinese sectors and don’t see a quick recovery happening, primarily due to the ongoing property sector crisis.
Adding to the concerns, 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 boost economic growth. As of late 2023, banks in China reported bad loan property ratios as high as 5%. Top property developers, including Evergrande and Country Garden, have also announced bankruptcy.
While China adds considerable uncertainty to global markets, its effect on Bitcoin prices is still unclear. Banking on investors to increase their crypto assets if the S&P continues to fall might be overly optimistic.
The information presented in this article is not intended to be investment advice or recommendations. Any investment or trading decision involves risks, and readers should perform their own research before making a decision.
Published At
4/12/2024 11:21:00 PM
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