Bitcoin and Crypto Crash Could Trigger "Imminent S&P 500 Summer Correction," Analyst Warns

Stock markets are surging after Federal Reserve chair Jerome Powell fanned the flames of September interest rate cut hopes—just after issuing a "critical" warning.

Stock markets are surging after Federal Reserve chair Jerome Powell fanned the flames of September interest rate cut hopes—just after issuing a "critical" warning.

The S&P 500 and Nasdaq have notched fresh all-time highs, following in the footsteps of the Dow, which hit a peak in May, despite fresh debt spiral fears unsettling traders.

Now, as uncertainty hangs over the White House, one analyst has pointed to a surprise stock market warning light that's just begun flashing red.

The recent bitcoin and crypto crash, that's seen $500 billion wiped from the combined market in just over a month, could be about to trigger "an imminent S&P 500 summer correction," Barry Bannister, managing director and chief equity strategist at Stifel, told MarketWatch.

Bannister pointed to the correlation of bitcoin to stock markets and specifically the tech-heavy Nasdaq in recent years.

"It’s the availability of cheap, Fed liquidity that drives the price of bitcoin," Bannister said. "Every single dovish pivot for the past 13 years has marked a sharp bitcoin increase, and bitcoin is a non-interest bearing asset that thrives on lower interest rates and available liquidity"—much like stock markets.

In his second day of Congressional testimony this week, Fed chair Powell said has "some confidence" inflation is falling but is not ready to declare the war on inflation won.

"Bitcoin has been a good leading indicator for the Nasdaq-100 over the years," Jonathan Krinsky, chief market technician at BTIG, wrote in a note ahead of the S&P 500, Nasdaq and Dow climbing this week.

For now, the momentum is with stocks as traders continue to bet on Federal Reserve interest rate cuts.

"Growing confidence over U.S. rate cuts kept the mood upbeat and the gains widespread," Dan Coatsworth, investment analyst at broker AJ Bell, said in emailed comments.