Prominent fund manager Jeffrey Gundlach explained how Bitcoin serves as a reliable stock market indicator.
Bitcoin, which is known for its high volatility, is becoming a new tool to predict stock market fluctuations. In his interview with Reuters, Gundlach gave an example of Bitcoin’s predictive power:
“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, an influential figure on Wall Street, stated that Bitcoin now exerts a strong influence on all risk assets, such as junk bonds and equities. He referred to Bitcoin as “the poster child of the speculative mood”, noting a strong connection between movements of cryptocurrency and equity markets. For example, both S&P 500 Index and Bitcoin’s price experienced growth in mid-September 2017.
“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 said.
Gundlach already suggested Bitcoin as a stock market indicator in February, when he spoke to a panel of finance players during CNBC’s Halftime Report. He said:
“If stocks are going to take another tumble, I think it would be preceded by a Bitcoin decline.”