Historically, Bitcoin tends to show leadership ahead of larger moves in the stock market. In October of 2023, when stocks were falling, BTC went the opposite direction, making everyone wonder why BTC was rising while stocks were falling. In the meantime, the message is clear: Bitcoin was leading, stocks were lagging, a dynamic that will continue be present in 2024 and beyond. That’s why we recommend stock market investors to leverage Bitcoin’s trend as a leading indicator, also and certainly in 2024.
This article is not about Bitcoin’s price analysis nor Bitcoin’s price forecast. We suggest to read the following articles to understand our viewpoint about Bitcoin’s future path: Will Bitcoin go to $100,000 and How High Can Bitcoin Go In 2024.
Below is the Bitcoin chart, the weekly chart over 5 years.
As seen, BTC printed a very nice bullish reversal in 2023, one that created a nice ‘cup’ or ’rounded’ formation. This is a bullish characteristic, long term. More importantly, price action in the last 2 months has been very encouraging, it all started mid-October of 2023.
If we zoom into the ultimate ‘momentum indicator for stocks’, the Russell 2000, we see how sharp of a decline it registered in October. However, as seen on the chart, the purple box coincided with a failed breakdown, also known as a ‘bear trap.’ While it was not clear at that very point in time, with the benefit of hindsight, we can see how October marked the first part of an inverted head & shoulders setup which is a bullish pattern.
As we ‘replay’ the events in October and November, across Bitcoin and stocks (represented by the Russell 2000), we see how Bitcoin has been rising in October while the Russell 2000 was sharply falling, in November Bitcoin took a break while the recovered sharply, only to see Bitcoin rise again in the first days of December.
It is blatantly clear how Bitcoin is acting as leader.
We noticed this leadership behavior in the past, for instance in September of 2021 Bitcoin’s rally preceded the big rise in stocks and in December of 2021 it was the exact opposite.
The take-away of this article: watch Bitcoin, especially if it rises when stocks are not, high probability that Bitcoin is acting as a leading indicator for stocks. Exception: when Bitcoin goes in overdrive, speculation takes over and it becomes a consensus trade.
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