Tech
What the Bitcoin-Tech Stock Correlation Says About the Cryptocurrency Price Outlook
Hello everyone, welcome back to the Distributed Ledger newsletter. I’m Anushree Dave, a reporter for MarketWatch.
Halloween marked the 15th anniversary of the day the Bitcoin white paper was released, which discussed how Bitcoin would become an integral part of the global financial system. The coin has come a long way since then, peaking at over $65,000 in November 2021. In the past month, we’ve seen the coin rise 27.16%, according to data from CoinDesk. I asked industry insiders what we might see with the coin going forward, especially in comparison to tech stocks.
If you want to contact me for this newsletter or share your thoughts on cryptocurrencies, you can find me at Chirping.
Tech Stocks vs Bitcoin
I asked Matthew Graham, founding partner and CEO of Ryze Labs, which invests in blockchain technology builders, to discuss the correlation between bitcoin prices and tech stocks. Earlier this year, tech stocks rallied as bitcoin fell, but recently the disconnect has worked in the cryptocurrency’s favor. What does this mean, and what might we see next?
“As a nascent market, cryptocurrency market movements have been largely driven by endogenous factors. As cryptocurrencies continue to mature and grow as an asset class, we expect their correlation with other asset classes to continue to increase over time,” Graham said.
We are currently going through a period of decoupling, but Graham says this is just one aspect of a larger trend.
“In this case we are seeing a strong rebound from the over-selling that occurred in the wake of multiple high-profile crashes last year, particularly FTX of course, along with the tailwinds of bitcoin next [halving] and the consequent reduction in supply.”
James Butterfill, head of research at CoinShares, an alternative asset manager specializing in digital assets, said he expects the disparity between bitcoin and stocks to widen further in the coming months or even next year.
“Bitcoin has been separated from stocks since mid-August 2022. While the correlation once peaked at 72%, it recently fell to a paltry 4% against the Nasdaq […] The prevailing narrative revolves around the expectation of sustained and higher interest rates. However, as the ramifications of these elevated rates are already starting to show, with signs of stress already evident in areas such as credit defaults, elevated mortgage rates and PMIs.”
He added that the implications look favorable for Bitcoin but less so for stocks. “At this point in the interest rate cycle, any move to cut rates usually comes from an intent to avoid a recession, which is not a promising sign for stocks. On the other hand, persistently high rates are likely to put a strain on corporate profit margins, presenting another challenge for stocks. Bitcoin, however, is set to gain.”
Sam Bankman-Fried on trial
FTX founder Sam Bankman-Fried said in Manhattan federal court on Tuesday that he was unaware that $8 billion in customer money had disappeared until shortly before the cryptocurrency crash.
“In hindsight, our oversight of this was very poor,” he said on his final day of testimony. “I deeply regret not taking a deeper look at it.”
On Monday, federal prosecutors highlighted discrepancies between public comments made by Sam Bankman-Fried and decisions he made when the cryptocurrency exchange collapsed last year.
Assistant U.S. Attorney Danielle Sassoon highlighted public comments made by Bankman-Fried, in which she argued that FTX’s risk management protocols made it safer than other crypto platforms, even though this occurred while the company allowed Alameda Research, its investment arm, to make unlimited risky bets.
You can read the full stories from this week’s trial by Lukas Alpert Here AND Here.
Cryptocurrencies in a moment
Bitcoin
has increased by 3.64% over the past seven days and was trading at around $34,920.47 on Thursday, according to CoinDesk data. Ether
It also increased by 1.89% over the same period, settling at around $1,815.26.
Must read
The Hunt for Crypto’s Most Famous Fugitive. “Everyone’s Looking for Me.” (The Wall Street Journal)
Cryptocurrency Whistleblower At Center Of Storm Sam Bankman-Fried (The Rolling Stone)