In the past, bitcoin’s big rallies have started with a golden cross, but not all golden crosses have led to a big rally.

Bitcoin (BTC) and Wall Street’s benchmark equity index, the S&P 500, are on the verge of hitting an easy-to-track bullish technical signal, the golden cross, that often makes traders giddy with delight.

A golden cross occurs when the 50-day simple moving average (SMA) of the security’s price moves above its 200-day SMA, producing a cross on the price chart. Because moving averages are backward-looking indicators, the signal tells us only that the market’s short-term gains have surpassed its long-term gains. Still, chart analysts and traders see it as a harbinger of higher prices over the long run.

“The winds of change have started to blow with the increasing likelihood of bullish golden crosses in the near future,” analysts at Valkyrie recently noted in a newsletter, referring to the impending crossover on the daily bitcoin and S&P 500 charts.

Bitcoin will likely see its first golden cross since September 2021 in the next week or two, according to charting platform TradingView. Meanwhile, the S&P 500’s averages appear on track to produce the golden cross on Thursday.

The concurrent appearance of the golden cross on bitcoin and the S&P 500 might motivate trend-following crypto traders to hit the market with fresh bids. Bitcoin has evolved as a macro asset since early 2020 and tends to move more or less in line with the S&P 500.

Traders, however, should note that while bitcoin’s big rallies often start with a golden cross, not all golden crosses lead to a big rally.

Bitcoin has seen eight golden crosses to date, of which three, confirmed in February 2012, October 2015 and May 2020, were on point, presaging at least a yearlong bull market that saw prices rally between 100% and 350%, data from TradingView shows.

On the other hand, golden crosses of July 2014, July 2015 and February 2020 were bull traps as the cryptocurrency crashed violently into a death cross in the following weeks/months. The death cross is the opposite of the golden cross and represents a bearish shift in the long-term trend.

The remaining two golden crossovers, formed in April and September 2019, were undecisive, with prices rising sharply in the following two months only to slip into a death cross later.

The S&P 500’s past data paint a similar picture. The index has seen 52 golden crosses since 1930. In that time, stocks rose in the following year 71% of the time, according to a MarketWatch report quoting Dow Jones Market data.

So, the golden cross appears unreliable as a standalone bullish indicator and should be read in conjunction with other factors, mainly the Federal Reserve’s policy, which is becoming less hawkish with each passing month.

As expected, the central bank stepped down to a smaller 25 basis point rate hike on Wednesday, lifting the benchmark borrowing cost to the new range of 4.5% to 4.75%. During the post-meeting press conference, Chairman Jerome Powell acknowledges that “inflation has eased somewhat” while downplaying the risk of tightening-induced economic recession, bringing cheer to risk assets.

According to ING analysts, the Fed is likely to deliver another 25 basis-point increase in March and then pause the rate-hike cycle that rocked financial markets last year.

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The cryptocurrency tends to bottom out weeks ahead of the S&P 500, research by Delphi Digital shows.

Traditional market investors looking for hints of a potential bearish-to-bullish trend change in U.S. stocks should keep a close eye on bitcoin.

The leading cryptocurrency by market value tends to lead major stock market bottoms by at least six weeks, analysis of past data by Delphi Digital shows.

“History shows that, on average, BTC has topped ~48 days and bottomed ~10 days before the SPX [S&P 500],” Delphi’s strategists, led by Kevin Kelly, wrote in a 2023 preview sent to clients on Wednesday. “Over the past five years, all major price reversals in BTC have preceded those in major equity indices.”

It shows bitcoin and cryptocurrencies, in general, are looked upon by investors as more risky assets than stocks. As Brookings Institutions’ Eswar Prasad noted last year, bitcoin has become a speculative investment.

While corporate fundamentals and macroeconomic factors directly impact stocks, the crypto market is yet to develop strong links with the global economy. Digital assets, until now, have proved to be narrative-driven, with valuations almost entirely dependent on the pace of expansion in fiat currency supply, mainly the U.S. dollar and factors like inflation rate that influence the Federal Reserve policy.

“The crypto market is one of the purest bets on global liquidity expansion and currency debasement. Not only is it influenced by macro factors, but when market conditions change, it’s often the first to react,” Delphi’s strategists noted.

Bitcoin peaked at $69,000 on Nov. 11, 2021, or 55 days before the S&P 500’s topped out at 4,818 on Jan. 4. The index’s early 2018 top came 42 days after BTC’s bull run ran out of steam near $20,000.

The cryptocurrency bottomed out 11 days and eight days before the S&P 500 did on March 23, 2020, and Dec. 24, 2018, respectively.

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The 90-day correlation between the top cryptocurrency and the S&P 500 has risen to its highest level since October 2020.

The perennial debate of whether bitcoin (BTC) is a gold-like haven asset or a risky investment may heat up as the cryptocurrency’s sensitivity to stock markets has increased amid concerns that the Federal Reserve’s aggressive tightening plans may tip the U.S. economy into recession.

The 90-day correlation between bitcoin and Wall Street’s benchmark equity index, the S&P 500, rose to 0.49% on Friday, the highest since October 2020, according to data tracked by Arcane Research.

“Bitcoin’s correlation to the S&P 500 has only been higher for five days in BTC’s history, showing that the current correlation regime is unprecedented in BTC’s history,” according to Arcane Research’s weekly newsletter published on Tuesday.

The correlation has strengthened alongside a relentless tightening of the U.S. Treasury yield curve, a sign the Fed may have a hard time avoiding much-feared stagflation with rapid-fire interest rate rises without destabilizing the economy. The yield curve, represented by the spread between the 10- and two-year yields, is now just 20 basis points (bp) short of inversion, a recession indicator.

So, the long-held crypto market belief of bitcoin being a digital haven is yet to come to fruition.

“I wish I could say that crypto is really responding to fundamentals [high inflation], but I think the chief fundamental here is the crypto is responding to the rise in equity prices,” Marc Chandler, managing director and chief market strategist at Bannockburn Global Forex, told CoinDesk TV when asked about bitcoin’s recent rise.

The cryptocurrency has risen 8% since the Fed raised borrowing costs by 25bp last Wednesday and raised inflation forecasts. The move has some wondering whether investors are parking money in the cryptocurrency to hedge against inflation.

However, the ascent seems to have been powered by the uptick in the stock markets. The S&P 500 has risen 6% since the Fed rate hike and the tech-heavy Nasdaq index has rallied by 8.7%, according to data provided by charting platform TradingView.

“What I am interested in is the change in bitcoin and change in Nasdaq and what you find is the correlation is over 60%,” Chandler said. “The stock market [has been] going bid.”

According to Noelle Acheson, head of market insights at CoinDesk’s sister company Genesis Global Trading, macroeconomic and geopolitical uncertainties seem to be keeping bitcoin from drawing store of value bids.

“One of the main reasons is uncertainty. Bitcoin is a volatile asset, and in times of uncertainty, harnessing that volatility – which is usually a feature, not a bug – is difficult enough to dissuade even the most experienced volatility traders. This is especially acute in the current market, given that the uncertainty is driven largely by the war in Europe, and it is hard to predict outcomes when we do not know if the news emerging from the conflict zone is trustworthy,” Acheson said in a LinkedIn post.

“The outlook for rates is also a source of significant market uncertainty, as last week’s hike of 25bp will not make a dent in the inflation already hurting consumers’ pockets, let alone that which is yet to come,” Acheson added.

Bitcoin was last seen trading near $42,180, representing a 0.8% drop on the day. Since late January, the cryptocurrency has been restricted between $36,000 to $45,000.

Per Acheson, bitcoin needs needs “either renewed speculation or new macro investment to be able to break out of the current range.”

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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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The increase in tension on Monday sent U.S. stock index futures to session lows and bitcoin back towards the bottom of its recent price range.

Russian President Vladimir Putin signed decrees recognizing the independence of the Donetsk People’s Republic and Luhansk People’s Republic, both of which are located in eastern Ukraine’s Donbas region.

The White House responded by promising an executive order banning U.S. citizens from engaging in investment, trade, and finance with the so-called DNR and LNR. The Biden Administration further warned that these measures are but a warm-up for sanctions planned in conjunction with allies in the event of further Russian escalation.

European Commission President Ursula von der Leyen calls the Russian action a “blatant violation of international law, the territorial integrity of Ukraine, and the Minsk agreements.”

U.S. markets are closed for the holiday, but futures are trading and sunk to session lows following the news, with the Nasdaq 100 down 1.9% and the S&P 500 off 1.25%. Bitcoin had managed to climb over $39,000 after dropping to a three-week low of $37,200 early Monday morning, but has now dipped back to $38,200.

Financial Times Moscow Bureau Chief Max Seddon reports Putin has ordered Russian troops into the DNR and LNR regions of Ukraine on “peacekeeping missions.”

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