The correlation between Bitcoin and the S&P 500 index, which weakened significantly after Donald Trump was elected President of the USA, has started to strengthen again. This could pose short-term risks for the prices of digital gold, analysts warned.
After the presidential election on November 5, where Trump won, Bitcoin increased by 47%, significantly outperforming the S&P 500 index, which only added 4%. The political support for cryptocurrencies demonstrated by the elected president, as well as the control of the Republican Party in both houses of Congress, could form the foundation for a favorable legislative climate for cryptocurrencies.
Andre Dragosch, head of the research department at Bitwise in Europe, in an exclusive interview for CoinDesk noted, that the divergence in dynamics between Bitcoin and S&P 500 can be explained by the decision of the US Federal Reserve regarding interest rates.
“In my view, the stock market suffered due to the Fed’s tough stance on lowering rates in December. The planned rate cuts for 2025 were revised to only two reductions, which is less than was expected earlier,” explained Dragosch.
Meanwhile, the DXY index, which measures the value of the US dollar against major world currencies, rose by 5%, increasing pressure on risk assets. However, Bitcoin demonstrated relative resilience due to the reduction in coin balances on exchanges.
“The balance of Bitcoin on exchanges continues to decrease, even considering the profit-taking by investors,” he added.
Experts warned of possible short-term risks, considering the macroeconomic conditions.
At the same time, the analytical platform Santiment notes that over the last three years, cryptocurrency has increasingly been perceived as a “high-risk tech asset.” However, the beginning of 2025 could be a turning point, if Bitcoin can break away from the correlation with the S&P 500.
“Historically, crypto markets achieved their biggest bullish cycles when the link with stock markets was minimal or absent altogether. If Bitcoin and altcoins can demonstrate independence from the S&P 500 index, this could signal a refresh of historical highs,” believe the Santiment experts.
Despite the positive forecasts for Bitcoin, the high level of correlation with stock markets remains a risk in the short-term perspective. In case of a change in the macroeconomic situation or an increased influence of the Fed, the crypto market may face new challenges.