- Bitcoin kicked off this week with a modest move higher, rising 0.78 percent as of Monday’s close.
- The gains followed a sharp sell-off last week as traders pinned their hopes on a new stimulus package by the Federal Reserve and the U.S. Congress.
- The sentiment helped S&P 500 pare part of its last week’s losses. The U.S. index and Bitcoin have formed a short-term positive correlation.
Bitcoin’s rebound from last week’s low shed lights on its growing dependency on macroeconomic fundamentals.
The benchmark cryptocurrency on Monday surged 0.78 percent to $9,184.45, a move that aptly tailed the recovery sentiment in the S&P 500. Like Bitcoin, the U.S. index climbed on Monday to pare its recent losses, rising 44.19 points, or 1.5%, to 3053.24.
S&P 500’s Wall Street peers, Nasdaq Composite and Dow Jones, also inched higher by 2.3 percent and 1.2 percent, respectively. The Wall Street Journal credited “pure speculative optimism” for the S&P 500’s rebound, noting that expectations of a new stimulus package kept traders bullish about the index.
S&P 500 chart showing its intraday rebound on Monday (Source: TradingView.com)
The S&P 500 peaked at 3,233 in June. It is on track of reaching its all-time high even as conflicting poor fundamentals led by the rise in COVID infections jitters investors. Observers believe that the Federal Reserve and the U.S. Congress will keep injecting money into the economy to help sustain the rebound.
"There’s a safety net under the bond market and the equity market," said Philip Blancato, the president of Ladenburg Thalmann Asset Management.
Meanwhile, Bitcoin’s 150 percent price rally from its March 12 nadir has also appeared out of the same stimulus efforts. The hardcore cryptocurrency community sees the Fed’s $7 trillion cash injection as inflationary. Therefore, they tend to park their fiat into bitcoin, an asset with a limited supply cap of 21 million tokens.
More recovery ahead for S&P 500, Bitcoin
Macro fundamentals developed during the COVID pandemic crisis have prompted Bitcoin and the S&P 500 to form an erratically positive correlation. Therefore, whatever that moves the U.S. benchmark index could prove equally influential for the world’s leading cryptocurrency.
And by the look of it, the S&P 500 has room to grow further. So says Tony Dwyer, a prominent market analyst. The Canaccord Genuity’s chief market strategist on Monday recommended investors to purchase the S&P 500’s dips as he set his 12-18 months target for the index to 3,300. The new projection puts it 9 percent higher from where it closed on Monday.
"Following the initial ramp to 3,200, we have been anticipating a multi-week/month period of consolidation with the intention of incrementally adding risk each time the SPX pulls back to 3,000," Mr. Dwyer wrote in a note to clients.
Nevertheless, the veteran investor added that he sees the Fed’s “incredible monetary stimulus,” as well as improvements in the credit market and liquidity to improve the S&P 500’s outlook.
Bitcoin, for now, is treading in a similar scenario. The cryptocurrency’s price rally towards the $10,000-10,500 area in early June met with higher selling pressure. It later corrected lower towards $9,000 and has been since consolidating sideways for weeks.
Bitcoin price chart showing its recovery from March 2020 lows (Source: TradingView)
Bitcoin could attempt a bull run, nevertheless, should the Fed announces another stimulus package. The decision will come sometime in mid-July. Until then, it is likely for traders to hold the cryptocurrency above $9,000, a technical support level.
(Photo credit: David McBee/pexels)