S&P 500 Conflict History Points to Short-Term Bitcoin Bounce, Sell-Off in H2: QCP

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.

“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.”

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.

“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.”

This content was originally published here.

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