The macroeconomic situation parallels that of the 2001 Afghan war, when a post-invasion rally in the U.S. equity benchmark paved the way for a deeper slide.

Bitcoin bulls betting on a prolonged rally are likely to be disappointed, if previous wars’ impact on the S&P 500 is any guide, according to QCP Capital.

A study published by the Singapore-based crypto trading firm shows that in four of the previous five wars involving a superpower the S&P 500, Wall Street’s benchmark equity index, dropped on early headlines anticipating a military conflict only to chalk up lasting rallies in the months following the outbreak of hostilities.

The exception was during the 2001 invasion of Afghanistan. Then the S&P 500’s post-invasion rally peaked within three months and resumed a decline related to the dot-com bust before setting new bear market lows. QCP expects risk assets to chart similar moves this time, saying the macroeconomic conditions today are similar those of 21 years ago.

“Given the historical pattern, we expect global markets to remain supported in the near term,” it wrote in a research note published on Monday. “With that said, we remain very cautious in light of the prevailing macroeconomic headwinds.

“The closest parallel to the present situation is the 2001 Afghan war given the similarities: 1. Markets were under pressure from the dot-com deleveraging. 2. Impending stagflation with inflation at a then decade-high level of 3.5%,” QCP said. “In the Afghan war, markets saw a relief rally that lasted three months before resuming the downtrend and eventually breaking below the post-invasion lows.”

While many in the crypto community consider bitcoin a digital equivalent to gold, historical data shows it is a risk asset. The cryptocurrency’s 60-day correlation with the S&P 500 increased last week to a record high.

Since mid-November, markets mostly have been on the defensive, predominantly due to concerns that the U.S. Federal Reserve would close the liquidity tap sooner than anticipated to contain inflation. Bitcoin was already down over 35% from the record high of $69,000 reached on Nov. 10 when Russia-Ukraine tensions began escalating two weeks ago.

With the West imposing stricter punitive sanctions on Moscow over the weekend, analysts are worried that Russia’s exports of all commodities, including oil, metals and wheat, will take a hit, pushing the global economy into stagflation – a combination of low or stagnant growth and high inflation.

That may put even more pressure on the Fed and other central banks to withdraw liquidity. The Fed is expected to raise borrowing costs by 25 basis points this month and deliver at least five more quarter-percentage-point hikes by year-end. Goldman Sachs foresees the Fed raising rates four times next year, as mentioned in Monday’s First Mover Americas.

“One critical difference between the Afghan war and the current war is that interest rates were at 6.5% back then. This gave Alan Greenspan’s Fed a lot of room to ease rates all the way down to 1%,” QCP said. “This time, markets are under similar pressure, but the Fed has run out of easing options. Interest rates can only go higher and the Fed balance sheet can only shrink from here.”

Thus, the odds appear stacked against bitcoin and S&P 500 charting lasting gains in coming months. “If markets follow the same pattern as the Afghan war, any relief rally in the next few weeks or months will be a good opportunity to square up longs and initiate downside hedges,” QCP Capital noted.

Bitcoin was trading near $43,600 at press time, having printed one-month lows under $34,500 last Thursday, after Russia invaded Ukraine. The S&P 500 has bounced to 4,373 from Thursday’s nine-month low of 4,114, according to chart platform TradingView.

The equity index saw a prolonged bull run following the beginning of the Vietnam war (1964), Gulf war (1991), Iraq war (2003) and Crimean crisis (2014).

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