Bitcoin Crash Deepens as Market Fears Ripple Across Stocks
Markets have plunged in the past week, with the S&P 500, the Dow, and the 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, and igniting concerns of a potential full-blown price crash nightmare. In a striking development, Tesla billionaire Elon Musk has issued a serious warning regarding U.S. bankruptcy, prompting analysts at Citi to highlight bitcoin price weakness as a potential indicator that stock markets may soon mirror this downward trend. Federal Reserve chair Jerome Powell is anticipated to implement a reduction in interest rates next month—an action that could potentially elevate 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,” Dirk Willer 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 noted. “In previous analyses, we demonstrated that the Nasdaq 100 tends to perform significantly better when bitcoin is experiencing positive trading activity, and the opposite holds true as well.” Specifically, maintaining 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. As we approach the year’s end, Citi analysts are optimistic about liquidity making a comeback in the market, predicting that the Treasury general account will exceed the $900 billion mark, a level it has not surpassed in the post-Covid recovery phase. “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 wrote.
The bitcoin price has plunged alongside stock markets, despite Federal Reserve chair Jerome Powell initiating a new interest rate cutting cycle—typically a move that bolsters risk assets such as technology stocks and bitcoin. The Fed is anticipated to lower interest rates once more at its upcoming December meeting, with market indicators showing nearly a 70% probability of a rate cut, as per reports. The bitcoin price has experienced a significant decline since reaching an all-time high in early October, with certain analysts cautioning that this may indicate a potential crash in 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 broad decline, as seen during the Trump Tariff Tantrum in April. However, witnessing stocks at the forefront of AI development being decimated is a different story altogether. What heightens apprehensions is the absence of a clear catalyst for the selloff.”
