Bitcoin may experience a positive correlation with the S&P 500 on Wednesday, following the Fed's potential decision to cut rates.
JPMorgan stated that the S&P historically records 15% gains over the next year when Fed cuts rate during a rally.
Bitcoin inflows into exchanges have fallen to 25,000 BTC, signaling that investors are less inclined to sell their holdings.
Bitcoin (BTC) could be poised for a price surge following its positive correlation with the S&P 500, as market participants anticipate a 25-basis-point rate cut from the Federal Reserve on Wednesday.
Bitcoin could resume correlation with S&P 500 as Fed's rate decision draws closer
The S&P 500 could gain 15% over the next year if the Federal Reserve proceeds to cut interest rates, according to Kobeissi Letters, citing a JP Morgan report. Gains in the S&P 500, spurred by a rate cut, could trigger a rally for Bitcoin and the broader crypto market.
The bank explained that this outlook is based on historical patterns, where past rate cuts during which the index was near record highs were followed by a strong 12-month performance.
JPMorgan added that the S&P 500's short-term performance within the first month following such rate cuts tends to be inconsistent, with stocks historically finishing lower in 50% of past scenarios.
The statement comes as market participants price in a 96% chance that the Fed will cut rates by 25 basis points on Wednesday, per the CME's FedWatch tool.
"History says near-term volatility after Wednesday's rate cut will be a long-term buying opportunity," JPMorgan stated.
With the S&P 500 poised for positive returns, Bitcoin could see similar gains, due to increased correlation with the equity market in recent years.
During the COVID-19 pandemic in 2020, emergency Fed rate cuts saw BTC drop in line with the S&P 500 as investors flipped towards cash. However, both assets recovered soon after, with Bitcoin hitting new highs by the end of the same year.
Similarly, in 2023, the S&P 500 rose 26%, while Bitcoin climbed 147%. Likewise, in 2024, the index increased by 24%, while Bitcoin's value surged by 135%.
A rate cut decision could spur massive gains for BTC, which recovered the $116,000 threshold on Tuesday. The top crypto has largely seen a positive performance in September, rising from $108,000 at the beginning of the month.
Furthermore, Bitcoin inflows into exchanges have fallen to 25,000 BTC, marking a one-year low, according to data from CryptoQuant. Similarly, the average deposit size has declined by half since July, suggesting that BTC holders are less inclined to sell.
The performance of spot Bitcoin exchange-traded funds (ETFs) in the US over the past week also signals a renewal of positive sentiment ahead of the FOMC meeting, with the products recording $2.34 billion in net inflows last week.
Bitcoin could expand its bullish run if the Fed decides to cut rates on Wednesday, which is currently the most likely outcome.
The top crypto edged slightly higher in the Asian session on Wednesday, gaining 1% as it trades around $116,500.
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