This is a very simple chart, showing the ratio of Bitcoin price to the S&P 500 index. Historically, purchasing Bitcoin instead of buying into SPX has been a good idea near this yellow trendline, even if it drops below briefly, as it did during the COVID crash. You can observe that the break of the yellow downtrend in 2020 resulted in a massive period of outperformance for Bitcoin against legacy markets - with BTC outperforming SPX by roughly fivefold between October, 2020 and March, 2021.
Right now, the ratio is testing the previous all-time high from the end of 2017. The same can be said for both the TOTAL crypto market cap, and the TOTAL2 market cap (minus Bitcoin). The altcoin market is a little more in danger here.
This is actually very interesting. Obviously, it means that anyone who bought 20k Bitcoin at the last peak isn't doing better than had they stuck that same money into the S&P 500 index.
Things seem to have reached an equilibrium, and an interesting historical moment. I'd like to also note that the Bitcoin correction from July 2017 came much closer to its previous ATH against SPX than it came to testing its own previous ATH.
Failure to hold these levels could really be a bad sign, as it would mean crypto will no longer seem as attractive as an alternative investment, and the bull market for crypto could be over indefinitely. The psychology here is pretty important. People see outsized gains from crypto, and it becomes a bubbly market with rampant greed and lots of leverage. This may have already become its ultimate downfall.
This chart is really to see if this presents a buy signal. While Bitcoin hasn't retested its previous ATH against the U.S. Dollar, it has now retested its previous ATH against SPX. My next bullish target would be for it to double from the previous high on the ratio, likely putting Bitcoin between $100-200k on its next leg up. If SPX stagnates/corrects for a bit, perhaps Bitcoin can touch $120-130k. On the bearish side, some permanent damage may be done to the Bitcoin market if it cannot hold these levels, and if it cannot keep up its momentum against the stock market. The jig would be up, so to speak. The next level on the downside would likely be the mid-2019 ratio, which would probably put Bitcoin back between $13-20k.
The big question is: Can Bitcoin continue to appreciate against the stock market at the same rate?
This is not financial advice. Just something I noticed. It is meant for speculation and observation only.
-Victor Cobra
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I'll add - the simple reason why it might be helpful to look at ratios across different asset classes is because the wealthy (of course) want to remain wealthy, and continue to generate more wealth. Periods of outperformance in crypto present a unique opportunity for some wealthy entities to multiply their gains.
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This will probably get buried in the comments, so I'll show this here. Here's an example of a moment when SPX made a local lower low, while Bitcoin made a higher low. This particular higher low led to the beginning of the parabolic run from 10k to 65k.
This is SPX/M2 money supply, which shows that markets are at a critical level.
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The trendline, as I currently have it (obviously it can be drawn in different ways), is currently below 7.
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Currently around 6.40
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Would you look at that? Based on the original trendline I drew for this post, it has bounced off perfectly. Very interesting. Press play :)
@TradingView, Thank you very much for your comment, and for the feature!
-Victor Cobra
OfficialSkoL
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@VictorCobra hmmm, I've noticed the monthly candles at the end of 2018 and beginning on 2019 are similar to the last few monthly candles we currently have printed. Those candles led to a turn around. Maybe it's possible this ship does turn around.
cryptospawn
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Great chart and analysis my friend. At the expense of looking like I'm adding doom & gloom to the picture, things don't look so promising for crypto in the next 6 months or so. All markets are overinflated right now and due for a correction. This may or may not send people running to BTC. But BTC has issues of it's own right now with governments chasing it and outright banning it. On the other hand, consider quantitative easing, rising inflation, min wage spikes, rollout of the new world order, (which by the way seems to include crypto), etc. and you have an awesome Bitcake recipe on hand that on the long run still promises to create much more wealth than any other investment on Earth. So while the short term prospect for crypto looks poor, the long term shines more each day, meaning crypto in general will outperform the stock market over the next 12 months, decade, and century.
VictorCobra
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@cryptospawn, Thank you. Yes, I think it's possible to see some further panic in markets. I think we're going to experience a huge shift over the next year or two. We haven't seen traditional markets this overinflated since 2007, and if they get higher, we'll be reaching dotcom levels. Look at SPX/M2 money supply.
A lot of upside potential from here, but it probably won't last. The next recession/depression will probably tell us whether or not crypto is really here to stay. There's also a fractal I'm watching in the Dow Jones that looks remarkably similar to price action leading up to the 1929 crash. Probably won't play out exactly like that, but I find it really interesting. Take care, and thanks again for your comment!
-Victor Cobra
AlexCochrane
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@VictorCobra, I feel validated. That's the exact same chart I drew out. This analysis on BTC/SPX was very interesting. Thank you.
VictorCobra
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@AlexCochrane, Great to feel validated! I remember throwing this idea around last year as well. We’re definitely not alone :)