Bitcoin recent price slide could mean that the stock market’s benchmark index, the S&P 500, may be about to drop significantly as well, as the two assets often move in tandem as investors with greater risk appetite bet on both.

According to Barry Bannister, managing, managing director and chief equity strategist at Stifel, Bitcoin’s recent losing streak that saw it plunge from around $65,000 to a low above the $53,000 mark before recovering may be a cause for concern.

The cryptocurrency, down more than 23% from its all-time high, could signal a similar downturn for stocks, he argued, as the correlation between both assets has grown stronger since 2020 when the Federal Reserve intervened to boost liquidity in the market, suggesting an “imminent S&P 500 summer correction,” Bannister told MarketWatch.

While the price of Bitcoin has recently plunged the stock market’s benchmark index is up over 1% over the past week and more than 4% over the last 30-day period, compared to Bitcoin’s 17% decline over the same period.

The weakness in the cryptocurrency space was largely attributed to a confluence of factors, including Bitcoin miners still grappling with the financial impact of the halving event in April, which reduced the coinbase reward they received per block found in half and led some to forcibly sell a portion of their BTc to stay afloat.

These miners sold alongside the German government , which has been slowly moving funds from a wallet in which it has over 46,000 BTC onto cryptocurrency exchanges. The German government’s Bitcoin stash was originally of nearly 50,000 BTC, seized from the operators of a film piracy platform, Movie2k.to, which was last active over a decade ago.

On top of all this, defunct cryptocurrency exchange Mt. Gox has recently started repaying creditors in a move that puts an end to a 10-year long waiting period for users to get their digital assets back.

To Bannister, however, the drop reflects broader economic trends. He said:

It’s the availability of cheap, fed liquidity that drives drives the price of bitcoin. Every single dovish pivot for the past 13 years has marked a sharp bitcoin increase, and bitcoin is a non interest bearing asset that thrives on lower interest rates and available liquidity.”

Bitcoin’s constant trading and high volatility make it a good gauge of investor sentiment and Fed policy changes, according to Bannister, who given the recent decline in BTC anticipates a correction in the S&P 500, typically defined as a drop of 10% to 20% from a recent peak.

The analyst added the market would correct if the Federal Reserve doesn’t cut interest rates this year, as “we’ve reached the end of the line where the economy is not quite as strong and inflation sticky would simply be the worst possible outcome.”

Notably, consumer prices in the United States fell more than expected in June, with the Consumer Price Index dropping 0.1% from May, meaning prices increase 3% over the past year, reigniting hopes the Federal Reserve could move to cut interest rates in September.

According to Investopedia, market participants are now pricing in an 89% chance of a rate cut by that month according to the CME Group’s FedWatch tool, up from 73% the day before new inflation data was released.

Jonathan Krinsky, chief market technician at BTIG, also seemingly supported this view, noting that Bitcoin “has been a good leading indicator for the Nasdaq-100 over the years.”

Featured image via Pixabay.