Crypto Market Outperforms S&P 500 by 8.5% in March

Cryptocurrency traders have been closely monitoring the relationship between digital assets and the stock market, hoping to see a clear "decoupling" that would validate cryptocurrencies as an independent asset class. Over the past 10 days, the intraday movements of Bitcoin (BTC) and major altcoins have closely mirrored those of the S&P 500, despite trade war developments dominating market sentiment. This correlation has led to questions about whether cryptocurrencies are destined to follow the stock market's lead indefinitely and what conditions would be necessary for a genuine decoupling to occur.

The S&P 500 reached its peak on Feb. 19 and has since struggled to reclaim the 5,800 level, a support that had held for four months. Despite persistent pressure from US trade disputes with major economic regions, equities have shown notable resilience. Recent actions by both the United States and China suggest that both sides are gradually making concessions, which could indicate a potential bottom for the S&P 500 at 4,835 on April 7. The stock market has responded positively to robust first-quarter earnings, as companies adapt to tariffs by relocating production or expanding operations. For instance, Microsoft reported a 13.2% year-over-year increase in revenue, with higher margins and strong demand for artificial intelligence. Meta also delivered earnings and revenue that exceeded market expectations on April 30. These results have alleviated concerns about a potential AI bubble or the risk that the trade war could force companies to reduce investment.

Market participants are now closely monitoring the Federal Reserve’s next policy moves, rather than focusing on the recent decline in US PMI manufacturing data. Following a year of balance sheet reduction, the Fed is considering asset purchases to help ease selling pressure. An increase in liquidity is typically favorable for risk-oriented assets, which could benefit cryptocurrencies even if a full decoupling does not occur. Despite the short-term correlation, the cryptocurrency market has outperformed equities in recent months. Since March, the total crypto market capitalization has risen by 8.5%, while the S&P 500 has declined by 5.3%. Over a six-month period, this divergence becomes even more pronounced: the total crypto market cap is up 29%, while the S&P 500 is down 2%.

It is still premature to declare a definitive bottom for the S&P 500 or to conclude that the trade war has been resolved. An economic recession would likely have negative implications for both markets. However, the current strength in equities indicates reduced risk aversion among investors. For the time being, the elevated correlation between cryptocurrencies and stocks may represent the most favorable scenario. Despite weak US manufacturing data, Federal Reserve liquidity plans and strong corporate earnings keep equities and crypto afloat.