Week of Aug 30, 2022

The “S&P-fication” of Bitcoin

The Bitcoin Economic Calendar 🗓

Market Commentary 📺👇


If you feel as though bitcoin has started trading a lot like the S&P 500 lately, it's because it has. In this week's issue we will highlight the 2 key events that have accelerated the “S&P-fication of Bitcoin”, and what insights could be drawn from this correlation.

As we highlighted in last week’s issue, the 1-year correlation between the S&P 500 and bitcoin reached a new high, and it reached a new all time high this week as well. 

In May 2018, the 1-year correlation between bitcoin and the S&P 500 was a mere 10%... how did we get to the current 50.2%?

There are 2 main events that catalyzed the “S&P-fication” of Bitcoin. One was a macro change of existing economic conditions and incentives, and the other one was an important change in market structure.

Event #1: The Coronavirus Stimulus Checks

The first event that led to the “financialization” or “S&P-fication” of bitcoin was the rise of the “day trader” or retail investor. This social and economic event was spurred by pandemic lockdowns (many unable to work) and excess disposable income (recurring $1,400 checks monthly).

The first batch of checks was distributed in mid April and continued for several months. 

By mid May, both bitcoin and the S&P 500 had recovered a great deal since bottoming in March. This lured many investors in as markets continued to recover. The 1-year correlation between BTC and the S&P 500 went from -15% to a high of 46.2% in November 2021.

Between November 2020 and September 2021, the 1-year correlation between Bitcoin and the S&P 500 dropped again to a low of 20% - but a change in market structure altered that relationship once again by introducing the first Bitcoin ETF in the U.S. market.

Event #2 - Bitcoin Futures ETF launched in the U.S.

The success of the first bitcoin futures-based ETF gave access to many institutional investors that could previously not participate in the bitcoin markets. 

As a testament to the success, the Chicago Mercantile Exchange is now the second largest venue in terms of open interest for bitcoin futures contracts. (for context, the futures-based ETF products can only hold CME futures contracts). 

There are several insights that can be drawn from this new relationship. 

  1. Institutional bitcoin investors are already here.

Institutional investors have to manage portfolios that are impacted by the moves of traditional assets. Therefore, bitcoin positions have to be managed relative to the price moves of stocks and bonds, which are the main components in most actively managed portfolios. 

  1. Most institutional investors view bitcoin as a risk asset, not a store of value.

Many investors see bitcoin as the ultimate “risk-on” asset. In other words, it would be a great asset to short in a “risk-off” environment. We are seeing this play out, as there are a large number of short positions built up on bitcoin at the moment. 

  1. Forecasts for the S&P 500 now become relevant for Bitcoin

One of the advantages of this newfound relationship is that, for as long as it holds true, insightful analysis into the S&P 500 moves can act as a guide for where bitcoin could be headed next. 

As an example, take a look at Bitcoin vs. the S&P 500 futures throughout the month of August:

Notably, as we covered last week, the Chief U.S. Equity Strategists for Bank of America and Morgan Stanley see the S&P 500 finishing the year between -5% to -10% from the current levels. 

Looking at bitcoin data, we see some consistent positioning. For one, the perpetual swap funding rate is squarely in negative territory (meaning there are more short investors than long). 

And the below chart shows that there have been large net outflows from Coinbase to derivatives exchanges - which has historically preceded some large moves down (source: Cryptoquant research).

With this in mind, it’s important to note that there is a high level of open short interest in bitcoin at the moment. If there is a good-news catalyst for bitcoin, it could violently revert upwards as it could send shorts looking for cover. 

To close out on a high note, the Bitcoin network surpassed $100 Trillion in transacted volume last week!

S&P 500

Jerome Powell’s speech at Jackson Hole sent a clear message to investors - the Fed will bring down inflation even if it means pain for households, businesses, and markets. To no one’s surprise, markets reacted by dumping accordingly. 

This is consistent with the views from experts that we covered in our last issue. And if their views are correct, we are headed towards more pain in the weeks ahead. 

Consider the following chart as yet another piece of data that supports the thesis that markets have a bit lower to go.

The historical correlation between the S&P 500 earnings multiple and the 2-year interest rate yield (inverted), is astonishingly accurate dating back to 2018. At current levels, it suggests that the S&P should be trading closer to 3,600 -representing about a ~5% drop from the current ~4,050.

Another foretelling piece of data comes from courtesy of Macro Alf.

It highlights how the North American Home Builders Association Housing Index leads the U.S. unemployment rate by 12-months, and it signals that by 2023 the U.S. unemployment rate could be over 6%. That would be almost doubling from the current 3.4%.

In the week ahead we get another read at U.S. unemployment and over 5 Fed speeches.


The U.S. dollar has gone parabolic over the last 12 months, reaching a new 20-year high. Last week it closed higher by +0.68% - almost mirroring the loss in old, down -0.58% in the same period.

After last week’s Jackson Hole speech, interest rate markets are pricing a 61% chance of a 75 bps rate hike in September, up from 26% just a month ago.

This dynamic of higher interest rates and lower inflation will continue to provide a tailwind on the U.S. dollar and pressure on equities, gold and bitcoin prices.


The generalized risk-off sentiment after the latest Fed statements on Friday also spreaded to ETH and DeFi space both performing badly on the weekly close against BTC (-2.99% and -4.3%, respectively). 

At the time of writing ETH already partially recovered its losses from the weekend, certainly influenced by the proximity with the Merge that is expected to occur within 15 days (source Defiant Terminal).

On the stablecoins front, another failed project added to the frustration list - this time FEI Finance that was launched in 2021 experimenting with purely a crypto-backed algorithmic stablecoins being pioneers in introducing the concept of “Protocol Controlled Value”:

Also in 2021, TribeDAO (DAO that runs it) merged with a decentralized lending protocol Rari Capital aiming to scale its volumes. On April 30 Rari was affected by an exploit causing a $80M loss in crypto from its lending pools. After the incident, the community and $TRIBE holders proposed to make the users whole using their own reserves to repay the bad debt on behalf of the hacker”.

When the details of this proposal were disclosed some time later, it was voted down with the FEI team being the main responsible for rejecting it and proposing something different, as commented by Sam Kazemian (FRAX, another algorithm stablecoin founder):

On crypto twitter and governance forums several disappointed users threaten to use lawsuits if the current proposal (not making affected users whole) passes. There are several ongoing discussions to decide FEI/TRIBE's future, especially after one of the founders - Santoro, stated that "it was just a proposal" giving the impression that different solutions could be proposed.

Last week we covered the severe hit that the NFT space has been receiving in the last months with record low volumes on the main platforms/NFT marketplaces. 

In contrast to the general situation of NFTs, a surprising headline was announced last week with a big raise for the sector:

Limit Break, a blockchain game company led by Gabe Leydon (pioneer of mobile games at Machine Zone, sold for $600 million in 2020) raised $200M over two funding rounds with investors such as Paradigm, FTX and CoinBase. The project aims to “... replace ‘free to play’ with something I call ‘free to own’ games,” mentioned Leydon in a recent interview. 


Last week, news broke that SBI Holdings, the Japanese securities and banking giant, ended its mining operations in Russia by cutting ties with BitRiver, citing sanctions imposed by the U.S. back in April of this year. 

The company disclosed that they're now selling their mining equipment located at BitRiver's mining facility in Russia. Compass Mining, the Texas mining firm, also cut ties with the firm earlier in the year. For context, BitRiver is one of the largest crypto mining firms in Russia. Similar to how DeFi protocols can be sanctioned, The United States Treasury can also target mining companies.

Meanwhile in the East, miners located in Texas seem to be having a hard time securing more energy to expand their operations. The results of the most-recent heat wave have prompted Ercot, the state's grid operator, to slow down the issuance of new permits for miners. 

Due to the 2021 Texas-mining rush, even small energy sites are no longer available, so Texan miners are now struggling to build new energy infrastructure to continue growing. This has also resulted in some firms having to fire sale energy equipment they're not able to install and power-up. 

As contrarian as it may sound, even though Bitcoin's price broke the $20,000 mark during the weekend, difficulty is poised to increase by around 7% this week. In a nutshell, inefficient mining operations have been squeezed out of the equation after the most recent mining capitulation.

What's Ahead

Last week Minneapolis Fed president Neel Kashkari made some strong points against central bank digital currencies. Importantly, he is one of the voices within the Fed that vehemently opposes the initiative of a U.S. Central Bank Digital Currency. He sees why authoritarian governments like China and others would find the option attractive from a total control perspective, but that societies like the U.S. would suffer from a CBDC rather than gain from it.

Importantly, he is not _against_ U.S.-dollar pegged stablecoins, he is against a Central Bank U.S. dollar stablecoins. 

This is a key difference, and suggests that the U.S. could take a more public-private collaborative approach to stablecoin policy. For example, proper regulation and oversight of private offers like Circle’s USDC, which we support on the Ledn platform. 

A private U.S. dollar stablecoin makes sense for many reasons, but we’ll highlight a few here:

  1. Better privacy: A CBDC could theoretically allow a Central Bank to monitor all transactions, big or small. It could also monitor interest rates in real time, rewarding or punishing users for particular behaviours.

  2. It does not pose a threat to private banking: If Central Banks allow citizens to hold their CBDC in Central-Bank administered wallets, citizens would have very little incentive to keep their assets with private banks. Alternatively, private banks could integrate a private stablecoin rail and make their products more globally accessible. 

  3. U.S. Dollar denominated stablecoins are structurally beneficial for the U.S.: 

    1. For one, it expands the reach of the U.S. dollar and drains U.S. dollar liquidity out of the U.S. economy. This helps to slow down inflation.

    2. Second, stablecoin operators have to park their U.S. dollar reserves in a safe cash-like vehicle, and that has made them big buyers of U.S. government bonds. 

Stablecoin operators now hold more U.S. treasuries than Berkshire Hathaway. They are the 7th largest holder of U.S. treasuries in the world. This is also good for the U.S. economy as the bond purchases help keep the bond interest rates low. And stablecoin issuers are not speculative holders - they will likely want to hold the bonds to maturity.

While the week ahead is light with data, Fed officials are out in full force with 5 speeches throughout the week. 


8.00 AM EST - Fed Speech - Richmond Fed President Tom Barkin

9.00 AM EST - S&P Case-Shiller U.S. home price index

11.00 AM EST -  Fed Speech - New York Fed President John Williams


8.00 AM EST -  Fed Speech - Cleveland Fed President Loretta Mester

6.30 PM EST - Fed Speech - Atlanta Fed President Raphael Bostic


3.30 PM EST - Fed Speech - Atlanta Fed President Raphael Bostic


8.30 AM EST - U.S. Unemployment Rate & Non-farm Payrolls for August

It's a big week coming up, and as always, we'll keep you posted on any relevant news throughout the week right here and from our Twitter account.


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About the author

Mauricio Di Bartolomeo

Mauricio is the co-founder and Chief Strategy Officer of Ledn.io. He grew up in Venezuela where he and his family learned about Bitcoin. Now based in Canada, Mauricio holds HBA and MBA degrees from the Richard Ivey School of Business in London, Ontario in Canada.