After achieving a record high on March 28, the S&P 500 has stumbled, dropping below the 5,150-point mark on April 12. Correspondingly, the price of Bitcoin BTCUSD has exhibited a negative response during the same period, prompting an analysis of whether the factors influencing the stock market correction are applicable to cryptocurrencies.

As reported by Cointelegraph, the S&P 500 index experienced a 2.9% decline from its peak of 5,333. While seemingly moderate, this downturn signifies the first instance in four weeks that the U.S. stock market index has fallen below 5,120. The lingering specter of high inflation has sown doubts among investors regarding the Federal Reserve’s capacity to effectively reduce interest rates throughout 2024.

The catalysts for this downturn are escalating inflation and a more stringent U.S. Federal Reserve monetary policy.

On April 12, major U.S. financial institutions like JPMorgan and Wells Fargo disclosed a 4% decrease in quarterly net interest income. This metric delineates the variance between banks’ earnings from assets and their payouts to customers. This development mirrors the challenges encountered by smaller banks in 2023, as highlighted by Yahoo Finance.

Jeremy Barnum, the CFO of JPMorgan, observed a trend where customers are transitioning from traditional savings accounts to higher-yielding alternatives such as certificates of deposit (CDs). This shift helps elucidate why JPMorgan’s stock witnessed a 5.7% decline on April 12, despite a 6% surge in year-over-year net profits for the first quarter. Furthermore, JPMorgan CEO Jamie Dimon underscored the risks posed by geopolitical tensions and the prospect of further quantitative tightening by the Fed.

The prevailing cause behind the current stock market slump is enduring inflation, prompting the central bank to uphold higher interest rates, thereby constricting liquidity. However, this scenario might be viewed as inherently advantageous for Bitcoin, given its status as a scarce asset akin to gold. While gold reached a pinnacle of $2,431 on April 12, this development alone did not instigate market apprehensions.

According to Cointelegraph, on April 10, the yield on the U.S. Treasury 5-year note surged to its highest level in five months, signaling investor dissatisfaction with returns below 4.5% in light of the inflationary landscape. This situation carries two significant implications: firstly, the government faces elevated costs when refinancing its debt; secondly, companies are deterred from expanding and hiring due to the allure of more appealing fixed-income returns.

As gold prices ascend and investors seek higher yields in U.S. Treasuries, it reflects a lack of confidence in the economies. Under such circumstances, advocating for Bitcoin investments becomes challenging, irrespective of inflationary trends. With only a minority of market participants perceiving Bitcoin as a safe haven, the notion that the cryptocurrency could thrive during a stock market downturn remains speculative at best.

The global economy’s stability could be imperiled if China’s economic growth wanes.

In conjunction with the stringent Federal Reserve monetary policies and dwindling confidence in the U.S. economy, China has emerged as a significant cause for concern due to issues in its real estate sector and recent disappointing foreign trade figures. China recorded a 7.5% decline in exports year-over-year in March, surpassing the anticipated 2.3% downturn, as reported by Yahoo Finance. Analysts express apprehension regarding overcapacity in certain Chinese industries and do not foresee a swift recovery, primarily due to the ongoing turmoil in the property domain.

On April 10, Fitch’s credit rating agency downgraded China’s sovereign credit rating to negative as the country aims to issue $138 billion in long-term bonds to stimulate economic growth. Bloomberg highlighted that by the end of 2023, banks in China reported bad loan property ratios as high as 5%. Several prominent real estate developers in the region, including Evergrande and Country Garden, have recently declared insolvency.

China injects substantial uncertainty into global markets, yet its impact on Bitcoin prices remains uncertain. Nevertheless, it would be overly optimistic to anticipate investors augmenting their cryptocurrency holdings if the S&P 500 continues its descent.

This article refrains from offering investment advice or recommendations. Every investment or trading decision involves inherent risks, and readers are encouraged to conduct their own due diligence before making any financial choices.