The „Buffett indicator“ hints that the U.S. stock market is currently at dot-com bubble levels, Yahoo Finance reported on Aug. 20. The indicator divides the Wilshire 5000 index by U.S. GDP.
Meanwhile, on August 14, Berkshire Hathaway, led by Warren Buffett, invested in Barrick Gold, the world’s second largest precious metal miner. Some analysts said that it could benefit Bitcoin (BTC) in the long term, as it coincides with this stock market bubble alarm.
The indicator’s historical average is 1, and before the dot-com bubble, it was 1.71. Currently, the Buffett indicator is at 1.7, which indicates that the stock market is highly overvalued.
Some investors say that the price of Bitcoin can reach USD 50,000 thanks to Warren Buffett’s purchase of gold
If the U.S. stock market crashes because investors fear overvalued shares, Bitcoin could see a major reaction.
Does this provide any insight into Bitcoin’s long-term trend?
According to Tom Essaye, founder of Sevens Report Research, stocks are considered „fundamentally overvalued“ when the Buffett indicator reaches 1.3.
The current level of 1.7 indicates that there’s a possibility of a strong downward trend in the stock market if the trend is reversed. He explained:
„What does that mean for us? It means keeping long-term stocks in longer-term accounts and making sure we have assets (like a house, etc.). But it also means that this cycle of asset inflation better not stop, because as the total market capitalization index of 1.7 times the GDP tells us that if asset inflation stops, it’s a long, long way to fundamental support.
BlackRock, Vanguard, now have Bitcoin indirectly through MicroStrategy’s investment
Over the past four months, Bitcoin has shown some correlation with the S&P 500 and gold. Since the end of July, due to the fall of the US dollar, BTC has been following the price of the precious metal more closely.
It could be argued that a possible downturn in the U.S. stock market could strengthen Bitcoin’s momentum. Some institutions have begun to view Bitcoin as a legitimate store of value, leading to increased institutional inflows to BTC.
The correlation between Bitcoin and the S&P 500 broke slightly last week as stocks continued to rise. The BTC price was rejected at USD 12,400, registering a drop of 8.6% to only USD 11,370.
The deterioration of the correlation between Bitcoin Code and the US stock market, and the simultaneous fall of BTC and gold, reinforces the bullish argument for BTC when stocks are falling.
Professional traders aren’t worried about Bitcoin’s price stagnating at $12,400