The S&P 500 surged to an unprecedented 7,534 on Memorial Day, buoyed by a significant drop in oil prices stemming from a potential de-escalation in tensions in the Middle East. A preliminary framework agreement between the Trump administration and Iran aimed at reopening the Strait of Hormuz contributed to a decline in Brent crude, which fell below $100 per barrel. This decline effectively eliminated the geopolitical risk premium that had kept institutional investors on edge for weeks.
In the cryptocurrency realm, Bitcoin’s exchange flows for spot ETFs have struggled to turn around following a tumultuous week. Investors are left to ponder whether Bitcoin can leverage the current market dynamics or if it is still facing further downside risks.
Historically, there has been a notable correlation between Bitcoin and the S&P 500, particularly during periods of market optimism. Past instances have shown Bitcoin’s 90-day correlation value ascending to between 0.3 and 0.5 during risk-on equity phases, in stark contrast to the near-zero or negative figures recorded during risk-off times.
UBS has forecasted that the S&P 500 could hit 7,500 by the end of 2026, attributing about 14% of this projected earnings growth to advancements in AI and technology. The fact that the index has reached this milestone ahead of schedule compresses the timeline for various correlated risk assets, including cryptocurrencies like Bitcoin.
Bitcoin’s recent price structure indicates a notable recovery above its 200-day exponential moving average, revealing strong horizontal resistance near its previous all-time high. With a local bottom seemingly reached, the pressing question is whether macroeconomic momentum will persist long enough to push prices higher.
A critical factor to monitor is the demand from institutional investors, particularly in the Nasdaq options market and the spot ETF sector. Observing whether these entities can absorb the current supply or if they will experience selling pressure ahead of forthcoming macroeconomic data will be crucial.
The collapse in oil prices signals a potential disinflationary shock that may favor the cryptocurrency market. With Brent crude prices dipping below the $100 mark, analysts suggest that this shift serves as a catalyst for equity markets. Lower oil prices can influence consumer price index (CPI) expectations, which, in turn, might lessen the Federal Reserve’s inclination to maintain stringent interest rates. A softer dollar and loosened liquidity conditions would likely empower risk assets like Bitcoin to increase in value.
Brent crude had been trading above $100 for several weeks due to disruptions caused by Iran in the Strait of Hormuz, a crucial route for about 20% of the world’s oil supply. AAA data indicated that national gasoline prices had reached four-year highs just ahead of Memorial Day, underscoring the significance of oil price movements on the broader economic landscape.
