Stock markets have plunged in the past week, with the S&P 500, Dow, and Nasdaq all retreating from their record highs as U.S. President Donald Trump delivers a serious warning regarding China. Bitcoin has experienced a significant downturn, dropping below $100,000 per bitcoin, which raises concerns about a potential full-blown price crash nightmare. In a striking development, Tesla billionaire Elon Musk has issued a serious warning regarding potential U.S. bankruptcy. Meanwhile, analysts are highlighting bitcoin price weakness as a possible indicator that stock markets may soon experience a downward trend as well.
Federal Reserve chair Jerome Powell is anticipated to lower interest rates next month—an action that could potentially enhance the performance of the S&P 500, the Dow, and the Nasdaq stock markets. “It is plausible that bitcoin is a more sensitive instrument for pure liquidity, especially with equities caught up in the fundamentally-driven AI narrative,” strategists wrote in a note, pointing to dwindling bank reserves and tightening liquidity conditions via the U.S. Treasury’s general account as putting pressure on risk assets. “Traditionally, falling reserves have also impacted equities negatively, but this did not happen prior to this week,” Willer stated. “In previous analyses, we demonstrated that the Nasdaq 100 tends to perform significantly better when bitcoin is experiencing positive trading momentum, and the opposite holds true as well.” Specifically, holding a long position in the Nasdaq 100 exclusively when Bitcoin is trading above its 55-day moving average (with a one-day lag) enhances the active information ratio for the Nasdaq 100 from 0.95 to 1.4, and this trend remains notably significant for longer lags of 2 and 3 days.
However, as we approach the end of the year, Citi analysts anticipate a resurgence of liquidity in the market, predicting that the Treasury general account will exceed the $900 billion threshold it had previously halted its rebuilding efforts at during the post-Covid era. “This would suggest that liquidity conditions should improve going forward, which should support bitcoin, and could also get the Nasdaq Santa rally back on track,” Willer stated. The bitcoin price has plunged alongside stock markets, despite Federal Reserve chair Jerome Powell initiating a new interest rate cutting cycle—an action that typically bolsters risk assets such as technology stocks and bitcoin. The Fed is anticipated to lower interest rates once more at its upcoming December meeting, as the market is currently assigning nearly a 70% probability to a rate cut.
The bitcoin price has experienced a significant decline after reaching an all-time high in early October, with certain analysts cautioning that this may indicate a potential crash for the S&P 500, Nasdaq, and Dow. This week’s stock market downturn has impacted the S&P 500, Nasdaq, and Dow, with declines ranging from 2% to 3%. Analysts are on edge, concerned that this drop could lead to a broader correction. “Market participants aren’t used to seeing companies with such close involvement in artificial general intelligence selling off like this,” stated David Morrison. “It’s one thing for equity markets to experience a widespread decline, as we saw during the Trump Tariff Tantrum in April. However, witnessing stocks at the forefront of AI innovation being battered is a different story altogether. What adds to concerns is that there has been no obvious catalyst for the selloff.”