In terms of capital flows, the crypto and stock markets continue to show strong co-movement.
After the correction in the first quarter, in which both equities and crypto recorded significant losses, the second quarter has started with a clear recovery in risk appetite.
The S&P500 is up over 12% and recently reached a new all-time high, while Bitcoin [BTC] is up more than 16%, signaling a broad return to risky positioning.
However, this raises the question of whether accelerated capital inflows into risky assets are contributing to bubble-like conditions. As shown in the chart below, more than $2.6 trillion worth of S&P500 call options were traded on May 6, setting a new all-time high.
Additionally, call options accounted for nearly 60% of all options activity in the S&P500, the highest share in at least seven years.
Taken together, this signals increased speculation and possibly tense conditions in the stock markets.
In fact, one analysis notes that U.S. stocks are among the most expensive in the past 150 years of data. The price-to-earnings ratio currently stands at 37.9, the second highest level ever, behind only the peak of 44.2 in March 2000.
Simply put, current stock valuations are about 114% above their long-term average, a level that has historically been followed by market declines, a risk that broader markets now appear to be more explicitly pricing in.
This obviously shifts attention to the crypto market. So far, crypto has largely evolved alongside equities as capital has rotated between risky assets under similar liquidity and risk appetite conditions.
If stock valuations decline, could that downward pressure be transferred to cryptocurrencies via tighter liquidity and reduced risk exposure?
Fuel coincidence story?
On a technical level, crypto assets already appear to be following stocks.
Following increased options activity, the S&P500 ended the May 7 session with a loss of 0.38%, in line with Bitcoin’s 1.7% correction.
However, at macro level the correction remains relatively limited. The magnitude of this measure is still modest, and it is still too early to interpret it as a clear warning signal.
That said, on-chain data already points to early signs of weakening market conditions.
As the chart below shows, Bitcoin’s Coinbase Premium Index (CPI) has remained negative for more than ten days in a row, indicating continued selling pressure or weaker demand on the spot from US-based institutional participants.
Essentially, the combination of high stock valuations and weakening US demand for cryptocurrencies is unlikely to be a coincidence.
Instead, it suggests that institutional participants may already be reducing risk exposure, making capital flows increasingly defensive even as prices remain high.
From a technical perspective, this shift increases the likelihood of broader risk assets entering the late phase of a potential bubble cycle.
A correction could therefore spill over into the crypto market, with this defensive positioning serving as an early warning signal of a weakening in risk appetite.
Final summary
- Equities and crypto are moving together, supported by strong risky capital flows.
- Weak demand for Bitcoin signals increasing caution, raising the risk of a spillover if stocks correct.