Week of Aug 23, 2022

Bitcoin’s Correlation With The S&P 500 Soars As Markets Come Under Pressure

The Bitcoin Economic Calendar 🗓

Market Commentary 📺👇


Bitcoin prices have had a strong correlation with the S&P 500 index for the better part of this year. Recently, the 1-month correlation between the two soared to 68%. Importantly, the short-term outlook for the S&P 500 - and equity markets in general, looks quite volatile according to experts from Morgan Stanley and Bank of America.

We’ll dive into what the analysts are saying about the S&P 500 shortly. First, it’s important to remind ourselves why this matters for the price of bitcoin. 

In overly simplified terms, it matters because investors in these markets control a great deal of wealth in all markets - from equities, to crypto. And so, their portfolio decisions impact bitcoin price disproportionately relative to someone trying to protect their paycheque in Argentina or Venezuela.

Out of the many forces driving equity markets, the most important one is the U.S. Federal Reserve, and U.S. interest rates

This Friday we will get a speech from Fed Chair Jerome Powell at the Jackson Hole retreat. The Jackson Hole symposium is an annual event hosted by the Kansas City Federal Reserve bank. It has been home to many pivotal speeches over its 45 years running. 

Interest rate markets are currently pricing the Federal Reserve to increase rates by 50 bps in its upcoming September meeting, down from 75 bps. This is a big improvement, and the recent rally we saw in equities and bitcoin reflects the repricing of that expectation. However, the bigger question is what happens after September? There are 3 meetings left in 2022 - September, November and December. And the U.S. midterm elections are in November. Investors will be looking for guidance from the Fed.

To illustrate how this translates to bitcoin markets, we can see that the bitcoin futures contract for September delivery is trading below the current spot price in several venues:

It is also interesting to note that the market continues to price bitcoin higher beyond September.

In terms of market expectations for future interest rate decisions in the U.S. - the market is pricing three potential outcomes relatively evenly. Fed holds rates, Fed cuts rates slightly, Fed continues raising interest rates. In other words, markets are pricing a ⅔ probability that the Fed is done raising rates by next year.

While in some parts of the world bitcoin and digital assets are used to protect investor portfolios, in other parts of the world like Argentina, they are being used to protect paychecks. 

As we’ve been covering, the inflation in Argentina is soaring and locals are rushing to digital assets to exit their pesos and protect their savings. 

The news out of Argentina over the months read incredibly familiar to what I experienced in Venezuela. The headlines this week read like dejavu.  

The article that shook me the most because of the similarities with Venezuela, was a recent one by Al Jazeera on how Argentinian farmers are protecting their crops by not selling them locally on credit.

The farmers quoted in the article reference paying for the farm’s rent in “the value of the beans”, and that they were “ensuring that they had enough to meet expenses”. In other words, they are saving the beans to barter with them because it is more effective than saving cash.

The government is upset because farmers are not selling the crops in the open market, but these sales often need to be made in Pesos and often require credit terms. During hyperinflation, anyone that sells on credit is very likely to lose. This effectively reduces the economy to players that can pay “spot” for their inventory, effectively freezing a large portion of the economic apparatus.

S&P 500

Experts from JP Morgan, Bank of America and Morgan Stanley have all signalled that the S&P 500 has not yet seen a bottom for the year. While their outlooks and projections differ slightly, they believe that the market is about to come under tremendous pressure. 

Jamie Dimon believes that there is only a 10% chance of not going into a recession as a product of the Fed’s crusade on inflation.

Bank of America’s Head of U.S. equity Strategy, Savita Subramanian, believes it is still too early to call a bottom in the S&P 500 and projects that the index could close the year at the 3,500 level - which is below the previous low of 3,636 made in June.

Lastly, Mark Wilson, chief U.S. equity strategist at Morgan Stanley, believes stocks are on a collision course with more pain due to the upcoming economic slowdown. He expects the index to end the year at around the 3,900 level - which represents about a 6% drop from the current level of ~4,150.

Earnings season is coming to an end with NVIDIA and a few others reporting this week. Earnings have been relatively strong, and investor focus has now switched back to economic data and the Fed’s interest rate decisions.

A fascinating stat out of the Q2 earnings season was the fact that the Saudi Crown Oil company (ARAMCO), booked more profits this quarter than Tesla, Meta (Facebook), Apple, and Microsoft combined.

The above chart illustrates how commodities can represent a change of the tides for producing/exporting countries any day. 

Unfortunately, the speed at which this happens makes commodity producing countries like Venezuela, Nigeria, Argentina and others, prone to corruption and political instability.


The U.S. dollar index had a monster week last week +2.30%, which translated to downward pressure for gold. It finished the week down -3%, at $1,746/oz. 

While gold should be getting a tailwind from Europe, where their currency is devaluing fast - it has not been able to overcome the strength of the U.S. dollar. 

To put it in perspective, the Euro lost 2.16% of its value vs. the USD last week.

As we know, gold has a negative correlation with the real rates of the U.S. dollar (bond rate - inflation). While inflation seems to have started to cool down in the U.S., the Fed still has plans to continue increasing rates in the foreseeable future. This will keep gold markets under pressure until that dynamic between interest rates and inflation changes.


On the DeFi space, last week saw a sharp correction for ETH (-5.55%) after printing 6 weekly green candles in a row against BTC. This was driven mainly by a concerning macro outlook, a growing correlation with equities, and the Merge/OFAC sanctions debate that has been making headlines within the community.

The DeFi Index continues its struggle to outperform both ETH and BTC after another week of weak performance with a general risk-off sentiment.

As can be exemplified in the crypto twitter posts above, the Ethereum community has been broadly discussing potential implications for the ecosystem after the Merge upgrade considering that several regulated crypto entities are the main ETH stakers and how it could threaten the censorship aspect followed by the recent happenings with OFAC covered here last week.

If you would like to understand more details regarding the most important milestone for Ethereum blockchain since its launch - Lido, one of the main players offering liquidity for staked assets, put up an interesting article detailing what happens as a result of the upgrade here.

Giving a check at the NFTs, we continue to see a severe winter for the segment with volumes reaching all time lows (source NFT Go):

OpenSea for example had its trading volume decreased to its lowest level in 13 months last week. 

Not even blue-chip NFTs are showing strength with floor prices for Bored Ape Yatch Club, one of the most "glamorous" collection melting nearly 70% from May top.

DeFi TVL is also facing difficulties with significantly lower volumes after Luna/UST collapse in May, with Ethereum still representing the vast majority of these volumes as reported by Defi Llama:

Despite the generalized DeFi negative sentiment, the ongoing developments and a potential successful Merge could help to bring some appetite back to the sector. As usual we will keep a close eye on it and keep you posted.


Bitcoin miners have seen their margins compressed. During its peak profitability, an Antminer S19 generated a 500.00 USD per MWh, now making only $117.00, totaling a 76.6% drop.

As we've covered during the most-recent capitulation events in the mining sector, a handful of miners are having a hard time weathering current market conditions due to three main variables: rising cost of capital & energy costs, and over leveraged balance sheets. 

Pennsylvania-based Stronghold Digital, recently sold 26,200 of their rigs to reduce by $67.4 million their outstanding equipment financing agreements. This may not be the only debt-restructuring move that we'll see come to fruition within the mining industry. Last week we covered how new players, like Bitmain, are entering the lending space to provide new finance options for miners to weather the current crypto winter.

On the flipside, Reuters covered how Stronghold Digital recycles coal waste from Pennsylvania's coal mines to mine Bitcoin while solving a centuries old problem in the state. Coal ash can pollute both air and water if not used, with the state having over 800 inactive coal mines, Bitcoin mining has proven to be a way to use them. 

What's Ahead

This week we get a pulse check on the U.S. economy with New Home sales, another read on inflation through the Personal Consumption Expenditures Index, earnings from NVIDIA and a potentially important speech by Fed Chair Jerome Powell at the Jackson Hole symposium.


9.45 AM EST - S&P U.S. Producers Manufacturing Index

10.00 AM EST - U.S. New Home Sales 


9.30 AM EST - NVIDIA Corporation earnings call


8.30 AM EST - Initial & Continuing Jobless Claims (U.S.)


8.00 AM EST - Personal Consumption Expenditures Price Index (U.S.)

10.00 AM EST - Fed Speech - Jerome Powell, Chairman of the Fed, speaks at the Jackson Hole retreat

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.