Bitcoin and S&P 500 rally 9% and 6% as US dollar weakens

Bitcoin's price movements have increasingly mirrored those of the S&P 500, leading many to suggest that cryptocurrency has matured into a typical risk asset. However, this correlation may indicate deeper issues with the US dollar and the policies governing it, rather than a shift in investor risk appetite.

Every financial transaction involves an asset and a currency. If confidence in the currency weakens, the value of all assets tends to rise together. For instance, in early April, both Bitcoin and equity futures experienced a decline followed by a rebound after the White House announced steep tariffs on Asian imports. This movement suggests concerns about US fiscal discipline and the Federal Reserve's ability to manage inflation without causing further economic strain.

Sticky inflation and expanding deficits continue to put pressure on the US dollar. The 30-day correlation between Bitcoin and the S&P 500 jumped above 0.4 last month, the highest since 2020. During this period, the US Dollar Index slid to a 12-month low, while Bitcoin gained 9% and the S&P rallied 6%. This pattern is not random but reflects a collective hedge against a perceived unstable currency.

Trading desks have observed that when the US Dollar Index loses value intraday, buy orders for Bitcoin and index ETFs increase within minutes, often placed by the same hedge fund algorithms. These algorithms prioritize the stability of the currency over the specific asset, indicating a broader shift in market sentiment.

Headline US inflation has cooled from 9% in 2022 to about 3% today, but persistent services prices and swelling deficits keep real-yield expectations fragile. Traders are now debating how much inflation the Fed will tolerate. When the Fed surprised markets with a 50-basis-point cut in December 2024, five-year breakevens jumped to their highest since 2011. Bitcoin cleared $70,000 within four sessions, and the S&P set a record close, highlighting the correlation between asset prices and currency stability.

Pressure on the US dollar also comes from abroad. The BRICS bloc is increasingly settling trade in local currencies and has tested wholesale central bank digital currencies. Central banks bought 1,045 tons of gold last year, the largest haul since the 1960s, while trimming Treasury holdings. Sovereign funds are testing Bitcoin allocations, and legislatures from various regions have eased rules on using it, signaling a widening search for exits from the dollar.

When official institutions diversify, private capital follows suit. Stocks behave like scarce assets when cash feels elastic. The S&P’s price-to-sales ratio sits near all-time highs even as earnings growth slows, a pattern last seen during the late-1990s inflation scare. Capital is paying up for productive assets because they look sturdier than paper promises.

Bitcoin’s realized swings in April slipped below those of the Nasdaq for the first time, hinting at a maturing holder base and reinforcing Bitcoin’s appeal as a reserve asset in waiting. Correlation between Bitcoin and the S&P 500 is fickle and appears only when doubts about money itself dominate the tape. In the months since the Fed’s December pivot, rolling correlations have spent more time above 0.3 than in the previous 18 months combined, indicating that the dollar is the only thing that matters.

US gross debt has passed $36.2 trillion, and the Treasury now spends more on interest than on national defense. The Congressional Budget Office projects deficits further rising with $1.9 trillion already. Investors are wagering that the bill will be met with easier money, so they rotate into anything that cannot be printed at will. Joint rallies in Bitcoin and the S&P 500 are distress flares, not proof of convergence. They persist as a warning light on the dashboard until Washington restores discipline and the Fed re-anchors expectations.

Investors are acting now, leaning into assets with built-in scarcity. In this process, Bitcoin never loses its identity; equities borrow some of its scarcity halo. The two assets rise together not because they converge but because the ground beneath them shifts in the same direction.