Bitcoin is trading on ETF news, but analysts caution on macro headwinds

As stocks trended down on the first trading day of 2024, analysts speculate about what the rest of the month will look like for equities markets and crypto prices.

The S&P 500 and Nasdaq Composite indexes dipped Tuesday, losing 0.7% and 1.9%, respectively, toward the end of the trading session. While the Dow Jones Industrial Average managed to stay relatively flat, the Russell 200 slipped 0.7%.

The decline doesn’t bode well for the sky-high prices analysts expected.

Goldman Sachs last month increased its S&P 500 target by 8% to 5,100 by the end of 2024, citing Federal Reserve rate cuts and declining inflation as key tailwinds. Strategists surveyed by Bloomberg reported a slightly lower median expectation of 4,850, which would still put 2024 returns around 2% higher than those of 2023.

Experts agree that if all goes according to plan — rate hikes, soft landing, positive earnings and in-check inflation — a rally could be sustained, but whether or not these specific conditions can be met and sustained remains another story.

“The S&P 500 is starting 2024 trading at a very lofty 19.5x valuation and while I’m not going to say that valuation is unjustified, I will say that valuation makes several key, positive assumptions about critical market influences in the coming year,” said Tom Essaye, founder of Sevens Report Research. “And how reality matches up with those assumptions will determine whether stocks extend the rally (and the S&P 500 hits new highs and makes a run at 5,000) or gives back much of the Q4 Santa Claus rally.”

While bitcoin and ether managed to build on an early 2024 rally, crypto analysts say exchange-traded fund optimism (the largely accepted catalyst for bitcoin’s run at $46,000 this week) will not be the only factors influencing the price.

“Crypto has tended to diverge from macro markets over the past year, but rate cuts and inflation will likely have a similar impact on both [stocks and crypto],” Clara Medalie, director of research at Kaiko, said.

Bitcoin’s (BTC) price hovered below $45,000 Tuesday afternoon after flirting with $46,000 earlier in the day.

“While the potential BTC ETF approval is not the only factor impacting the market, the narrative has likely contributed to price action in the past few months,” Tal Cohen, Managing Director US at Kraken, said. “A BTC ETF makes bitcoin accessible to a swathe of investors who can’t or won’t custody the physical asset, and approval also underscores the point that crypto as an asset-class is very much here to stay.”

If positive news from the US Securities and Exchange Commission does not come this week, it’s difficult to say what bitcoin will do, analysts said.

“If the SEC nod doesn’t come tomorrow, does that mean BTC prices drop sharply?” Noelle Acheson, author of the “Crypto is Macro Now” newsletter, said. “Maybe — speculation does seem to be getting a bit ahead of itself, and the BTC funding rate (the cost for long positions in perpetual futures, a useful trader sentiment gauge) has climbed sharply over the past week.”

Premiums on bitcoin futures contracts hit more than $2,000 Tuesday, a sign some experts say points to increased interest in the asset. “

Usually the spot and futures market for bitcoin trade at the same price,” Michael Zhao, researcher at Grayscale, said. “However, because the CME futures price of bitcoin is higher relative to the spot price, one could hypothesize that there is institutional anticipation for a market event like the spot bitcoin ETF approval, given its been bid up so hard.”

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