In the latest S&P 500 article, we discussed the VIX’s bearish signal. Now that the VIX has breakout of the contraction, the S&P 500 is feeling the downside pressure. ASML was the last catalyst to trigger the AI and semiconductor selloff, but it was a long time coming. Although the retreat is not in full correction mode, the risk is obvious. But should crypto traders worry if the S&P 500 enters full correction mode?
The S&P 500 and bitcoin have a significant relationship. Over the last two years, the correlation between them has been 93.5%. Because of this, whenever stocks enter selloff mode, crypto traders should be careful. However, there are some silver linings for the crypto market that could save bitcoin. First, Trump’s latest pro-crypto approach brings positive sentiment. Second, after the bitcoin halving, the crypto market might be closing in on another bull run that is expected to start after August, likely in the third quarter if previous cycles repeat themselves.
(BTCUSD – S&P 500 Daily Chart)
The chart above shows the high correlation between bitcoin and stocks. Since October, this correlation has weakened three times. In the first instance, stocks fell as bitcoin’s advance accelerated. However, the divergence did not last long, and stocks caught up with the rising crypto. In the second instance, bitcoin diverged negatively. Just like before, bitcoin recovered in a few weeks and made a significant surge. Now, the divergence is happening against bitcoin again, but after the last few days, the gap has lessened but not completely closed. So, if the S&P 500 starts a retreat, bitcoin has some space before it is negatively affected.
(BTCUSD Daily Chart Chart)
Bitcoin has been in a consolidation period since March. From a technical standpoint, it could be described as a flag formation, so the medium to long-term outlook is positive. However, in the short term, gains might remain limited, at least for the remainder of July. The 65k-66k zone might create significant resistance, and if stocks begin to fall, bitcoin has some room to retreat. However, as long as the 57k support holds, possible downward moves will only create buying opportunities for long-term investors. As for upward moves, above the 65k-66k zone, 70,500 will be the main resistance to follow.
