Bitcoin, which has seen wild price swings over the past two months, is emerging as the new stock market indicator, according to famed fund manager Jeffrey Gundlach. Despite losing much of its value since its peak in December, the digital currency is still beating the S&P 500, Gundlach told Reuters, adding that price fluctuations make his assertions more than a mere “gut feeling.”
Gundlach, who manages $119 billion in assets at DoubleLine Capital, said:
“Bitcoin closed at the low of the year last week, SPX (Standard & Poor’s 500 Index) is now at the low of the year this week…Bitcoin keeps leading.”
Gundlach, known on Wall Street as the “Bond King,” went on to add that Bitcoin is now the “lead horse” of risk assets as evidenced by the effect of its price swings on other risk assets, for example, high-yield junk bonds and equities.
Bitcoin’s predictive power
To demonstrate the predictive power of what he called “the poster child of the speculative mood,” Gundlach noted that equity markets dropped when Bitcoin prices fell. The cryptocurrency slumped from its mid-December peak of nearly $20,000 to around $6,600 in February before rebounding to $11,500 in the first week of March. It fell again last week but has since bounced back, reaching $7,386 on Wednesday.
Gundlach noted that Bitcoin’s price began climbing around mid-September 2017 and the S&P 500 Index also went up. However, Bitcoin began its descent in late December, indicating that “the speculative mania of the social mood had already passed.”
The S&P 500 climb continued until January 26 and started to collapse shortly after that. But while Bitcoin was already showing signs of recovery and even rallied, the S&P index continued its plunge before reaching its bottom, with tech-focused Nasdaq beginning a journey to a new high.
“But as that new high was being made, Bitcoin was back in bear-market mode. Soon after it was tank time again for stocks. It is all tied together, obviously,” Gundlach stated.
Next stock market tumble to follow Bitcoin slide
Gundlach first floated the idea of Bitcoin becoming a relative indicator for stock market movement in February, when he told a panel of finance players during CNBC’s Halftime Report that the next stock market tumble would follow a slide in the digital currency price.
He said at the time:
“That sort of presaged the volatility in the stock market. If stocks are going to take another tumble, I think it would be preceded by a Bitcoin decline. And Bitcoin – while the stock market was having trouble finding its footing – Bitcoin managed to start rallying and advanced, and then the stock market bottomed out.”