American banking giant Goldman Sachs has made a bleak prediction for the S&P 500 and its one that will impact Bitcoin and the rest of the crypto market.
According to the firm, the major US stock index will eventually retest 2400 points around mid-year before a stronger rally back to nearly 3000 points takes place. However, due to Bitcoin‘s continued correlation with the S&P 500, not only could this point to another stock market collapse but another epic crash in the cryptocurrency market.
A Repeat of Black Thursday Market Crash Possible Around Mid-2020
Black Thursday is a day that few will forget. The stock market suffered a catastrophic crash as a result of the coronavirus halting economic production and striking fear into the hearts of investors everywhere.
Bitcoin also suffered one of the worst corrections the asset has even had in its short history, falling over 40% in 24 hours to under $4,000.
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Since then, the two wildly different assets have been tightly correlated. The two assets have staged a strong recovery since, with the S&P 500 rallying over 30% from lows, and Bitcoin doubling in value and reaching over $8,000 just today.
However, according to banking powerhouse Goldman Sachs, the S&P 500 is in for another crash and retest of lows, which if the correlation between the stock index and cryptocurrencies continues, will spell disaster for Bitcoin.
S&P 500 and Bitcoin Must Set Higher Low Before Wider Investor Interest Returns
According to a chart from the banking firm, after peaking near current levels around 2900, the S&P 500 would fall to around 2400 mid-year, before making a stronger push higher.
The failed momentum to push the stock market higher, according to Goldman Sachs analyst David Kostin, is due to a lack of wider participation.
He explained that “the further market concentration rises, the harder it will be for the S&P 500 index to keep rising without more broad-based participation.”
Essentially, until more retail investors, retirements funds, and others begin re-entering the stock market, the upside is limited for now.
The same has been true for cryptocurrencies like Bitcoin. In late 2017, retail investors’ interest drove the first-ever cryptocurrency to $20,000. Today, it’s trading at just $8,000.
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A dramatic drop is often required to bring assets to a more attractive price before wider participation starts, and a retest of lows that holds above the previous low, is a signal that its safe to get back into the stock market or crypto assets.
For now, neither the S&P 500 or Bitcoin has set a higher low since Black Thursday, and until they do, the assets are still vulnerable to another drop – and according to Goldman Sachs, this could happen around mid-year.
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