FG Trade
Bitcoin (BTC-USD) ups and downs in price since inception can almost entirely be traced to two factors – financial system liquidity changes and investor desires to own a “decentralized” digital currency as a hedge against fiat money printing. Honestly, without deficit-happy government spending around the world, I doubt Bitcoin would have a good reason to exist.
Believe it or not, this makes Bitcoin (and other cryptocurrencies as a group) an excellent indicator of future stock market action, functioning as a grand risk-on money flow indicator. When you do the research, Bitcoin tends to lead the stock market for trend (both up and down), by varying degrees over its short history from invention in January 2009.
In terms of confirming the U.S. stock market’s S&P 500 rise to new all-time highs in May 2024, problems are developing. Bitcoin has actually failed to keep pace with equity trading gains since the 2021 top, and has lagged badly for percentage performance since March of this year. What this may be telling investors is net liquidity has been shifting from excessive levels of money floating around the financial markets (which helped propel price above $73,000 in March) to something akin to tightening credit conditions.
It could be a signal: (1) consumers have spent all of their COVID pandemic stimulus-check windfall in aggregate, (2) continuing high rates of 4% inflation are sapping wealth and confidence, and (3) the negative effects of an inverted Treasury yield curve over 18 months are finally squeezing bank lending as a whole (measured since October 2022, looking at 3-month vs. 30-year securities).
Another worry, 2023-24 Federal Reserve “promises” of lower interest rates may prove illusory until a recession sends inflation back to the central bank’s 2% stated goal. If anything, inflation rates appear to have bottomed in the 3% to 3.5% YoY range during early 2024, as numerous commodities have jumped in price since March and wage growth remains stubbornly high.
So, if the logical trading conclusion is Bitcoin peaks first when system liquidity is highest, the absence of a new record in May with…
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