Stock markets have dived over the last week, with the S&P 500, the Dow and the Nasdaq all coming off their all-time highs just as U.S. president Donald Trump issues a stark China warning.
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Bitcoin has also moved sharply lower, plummeting under $100,000 per bitcoin, and raising the spectre of a full-blown bitcoin price crash nightmare.
Now, as Tesla billionaire Elon Musk issues a serious U.S. bankruptcy warning, analysts with Citi have pointed to bitcoin price weakness as a potential sign stock markets could be about to follow it lower.
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Federal Reserve chair Jerome Powell is expected to cut interest rates next month—something that could boost the S&P 500, the Dow and the Nasdaq stock markets.
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“It is plausible that bitcoin is a more sensitive instrument for pure liquidity, especially with equities caught up in the fundamentally-driven AI narrative,” strategists at Citi, led by Dirk Willer, wrote in a note seen by MarketWatch, pointing to dwindling bank reserves and tightening liquidity conditions via the U.S. Treasury’s general account as putting pressure on risk assets.
“Traditionally, falling reserves have also impacted equities negatively, but this did not happen prior to this week,” Willer wrote. “We had shown in the past that the Nasdaq 100 trades much better when bitcoin is trading well, and vice versa. In particular, being long Nasdaq 100 only when bitcoin is above its 55-day moving average (and lagging it by a day) improves the active information ratio for Nasdaq 100 from 0.95 to 1.4 and is similarly significant for longer 2 and 3 day lags.”
However, looking toward the end of the year, Citi analysts see liquidity returning to the market, with the Treasury general account topping the $900 billion level it has previously stopped rebuilding in the post-Covid era.
“This would suggest that liquidity conditions should improve going forward, which should support bitcoin, and could also get the Nasdaq Santa rally back on track,” Willer wrote.
The bitcoin price has dived along with stock markets even as Federal Reserve chair Jerome Powell restarts its interest rate cutting cycle—something that traditionally supports risk assets like technology stocks and bitcoin.
The Fed is widely expected to cut interest rates again at its next meeting in December, with the market currently pricing an almost 70% chance of a rate cut, according to CME’s tracker.
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The bitcoin price has moved sharply lower since hitting an all-time high in early October, with some analysts warning this could signal an S&P 500, Nasdaq and Dow crash.
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This week’s stock market downturn, hitting the S&P 500, Nasdaq and Dow by between 2% and 3%, has spooked analysts who fear the decline could spiral into a correction.
“Market participants aren’t used to seeing companies with such close involvement in artificial general intelligence selling off like this,” David Morrison, senior market analyst at Trade Nation, said in emailed comments.
“It’s one thing for equity markets to suffer a general pullback, as happened during the Trump Tariff Tantrum in April. But it’s quite another to see stocks at the vanguard of AI development getting trashed. What adds to concerns is that there has been no obvious catalyst for the selloff.”