Leverage Master JPMorgan Chase Introduces "Bear Market Indicator" - Can it predict whether a Bitcoin bear market is imminent?

Bank of America Merrill Lynch recently released a "bear market indicator" consisting of 19 market signals to help predict whether the traditional stock market is about to enter a bear market. These 19 signals include fundamental indicators, individual economic indicators, and sentiment-related indicators to measure from multiple dimensions, utilizing market data spanning over 50 years for backtesting. While the data is primarily intended for stock market analysis, some believe similar analysis can also be applied to predict the future trends of Bitcoin.

Bank of America Presents 19 Bear Market Indicators

Bank of America Merrill Lynch has released 19 indicators, with more than 60% currently triggered. For example, if an investor buys 3-month US Treasury bills now, the yield will be higher than buying 10-year US Treasury bills, which is abnormal. Normally, the longer the bond duration, the higher the risk and the higher the long-term yield. However, the current situation is the opposite. This phenomenon in the bond market is called an "inverted yield curve," which often occurs before a market recession and is one of the bear market warnings for U.S. banks.

Furthermore, stocks with low price-earnings ratios perform poorly, also a bear market warning. Stocks with low P/E ratios are usually undervalued and present a good buying opportunity in a bull market. When investors are unwilling to buy these cheap stocks, it often means they are crowding into growth stocks with high earnings and revenue growth rates.

Another warning sign is tightening credit conditions, simply put, "it's becoming harder to borrow money from banks." During periods of uncertainty or economic slowdown, banks reduce lending to hedge risks. According to a recent survey by the Federal Reserve, banks are expected to tighten credit conditions this year.

The "bear market indicators" have a significant reference value. According to reports, in October 2018, 79% of the warnings were triggered, shortly after which the S&P 500 index fell into bear market territory and experienced the worst December market since the financial crisis. The current market conditions suggest that the stock market may be at a bull-bear turning point, and Bitcoin as an investment tool is likely not immune to this.

Bitcoin Linked to Stocks?

However, many analysts disagree with the theory that Bitcoin will be affected by the stock market. They believe that Bitcoin is largely a "safe-haven asset," and when the global market enters a bear market cycle due to government policies or other external factors, it will not impact the Bitcoin market. Instead, Bitcoin, like precious metals, becomes a safe haven where investors flock for hedging purposes.

For example, when news of the Wuhan coronavirus negatively affects the stock market, the price of Bitcoin rises. This action indicates that investors believe the cryptocurrency market is disconnected from traditional financial markets and are willing to transfer assets to the cryptocurrency market when a crisis occurs in traditional financial markets.

However, since Bitcoin has never experienced major financial crises such as the subprime mortgage crisis or Black Monday, analysts cannot guarantee with 100% certainty how it would fare in a future bear market in traditional financial markets.

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