All asset classes feel the influence of the Federal Reserve, particularly during a rate-cut cycle. This includes cryptocurrencies, with Bitcoin being the standout, as it’s both the largest and the most closely watched. Now, you might wonder why Bitcoin matters, especially for those not actively trading it. Well, it’s become quite significant and, some might say, somewhat risky. Over recent years, it has shown a strong positive correlation with the S&P 500. They don’t always move together, but it’s unusual for them to diverge for extended periods. Sometimes, Bitcoin takes the lead, and at other times, it’s the S&P 500.
In January 2025, Bitcoin reached its peak while the S&P was just hanging around some highs. When Bitcoin declined, it was a major indicator of what was to come for the S&P. The two assets both stumbled in April. Fast forward to now, Bitcoin slipped from its high in August, but the S&P had a brief spike before continuing its rise.
Ideally, if the S&P leads this time, it could pull Bitcoin up with it, possibly even surpassing its previous highs. For this to happen in the near term, Bitcoin must complete a potential reverse head and shoulder pattern that’s been developing over the last month. This formation began by holding at the lower August levels, rallying, and then pausing to create what looks like a right shoulder. The whole pattern seems to be forming at a modest price level of around $117,000. From this setup, the traditional measurement suggests a move to about $127,600, aligning with Bitcoin’s early August highs. If that happens, we might see movements similar to those of the S&P 500.
As of now, Bitcoin hasn’t quite reached that level and has experienced some pullbacks in recent weeks, but it’s still respecting that breakout zone. A similar breakout last November led to strong gains. Now, as we move through September, investors remember that Bitcoin has historically seen strong performance in the fourth quarter. This context could allow technical conditions to align, pushing the patterns upwards.
Another aspect to keep in mind is the downward trading channel Bitcoin has been navigating over the past few months. Channels like this can be bullish, especially within the longer-term uptrend that Bitcoin has shown since hitting its low in late 2022. However, the last two breakouts didn’t continue with strong momentum, which is a challenge.
The 14-week RSI dipped below 70 two times this year but compared to much stronger historical measures from mid-2023 to early 2024 when it surged into the 80s and 70s. For momentum to genuinely return, we need to see a similar RSI surge on a weekly basis. If that occurs, the potential for significant gains could unfold. A broader view reveals that past bullish breakouts have led to substantial follow-throughs. Historically, Bitcoin has soared more than 130% in the latter half of 2023, along with another 50% in 2024.
While history doesn’t repeat exactly, it often seems to rhyme. Bitcoin has continuously influenced global risk sentiment, a trend that’s crucial for stock markets both in the U.S. and globally.
