- Without the US stock market outperforming, the cryptocurrency market would have difficulty delivering a positive return in 2023
- S&P 500 leads the cryptocurrency market
- Crypto investors should watch US economic data closely
The cryptocurrency market had a strong start to the trading year. After suffering from a bearish market in 2022, the rally that started in 2023 brings much relief to investors in the cryptocurrency market.
The enthusiasm is understandable.
After all, Bitcoin, the leading cryptocurrency, is up +45.93% YTD. However, before getting too excited, long-term investors still look at the 1-year losses of -35.62%.
Therefore, once again, timing the markets is important. Those going long crypto at the start of 2023 enjoyed an impressive performance, while those that remained invested for one year still enjoy the so-called “crypto winter.”
But why did the crypto market bounce? The answer lies in the chart below – because of the US stock market rally.
S&P 500 leads the cryptocurrency market
The chart above shows the S&P 500’s performance since the top in late 2021. Since then, the main US stock market index lost -16.36%.
Below are the three leading cryptocurrencies – Bitcoin, Ethereum, and Ripple. While they peaked a bit earlier, they lost between -60% and -70% in value from their 2021 highs to the 2022 lows.
So the bounce in the cryptocurrency market may look as being in response to investors turning their attention to the industry again, but instead, it is all about the US stock market. The S&P 500 rallied in 2023 too.
However, the dimensions of the two movements are different because of the difference between the S&P 500 and the cryptocurrency’s volatility.
In other words, given the current context, it is hard to see the cryptocurrency market’s rally continue if the S&P 500 index does not perform. Hence, crypto investors should care about the US stock market because the S&P 500 leads the gains or losses in the cryptocurrency market.