What the correlation between bitcoin and tech stocks says about the outlook for crypto prices

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Tech stocks versus bitcoin

I asked Matthew Graham, founding and managing partner of Ryze Labs, which invests in builders of blockchain technology, to discuss the correlation between the prices of bitcoin and technology 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, crypto market movements were largely driven by endogenous factors. As crypto continues to mature and grow as an asset class, we expect its correlation with other asset classes to continue to increase over time,” said Graham.

Currently we’re going through a period of decoupling, but Graham says this is just a part of a larger trend.

“In this case we are seeing a strong rebound from the excessive selling that occurred in the wake of multiple high profile collapses last year, most notably FTX of course, coupled with the tailwinds of the upcoming bitcoin [halving] and its concomitant supply side reduction.”

James Butterfill, who’s the head of research at CoinShares, an alternative asset manager specializing in digital assets, said he anticipates the disparity between bitcoin and equities to further widen in the coming months or even the next year.

“Bitcoin has been decoupling from equities since mid-August 2022. While the correlation once peaked at 72%, it recently plummeted to a mere 4% when compared to the Nasdaq […] The prevailing narrative centers around the expectation of sustained higher interest rates. However, as the ramifications of these elevated rates is already beginning to manifest, with signs of strain already evident in areas like credit delinquencies, elevated mortgage rates, and PMIs.”

He added that the implications seem favorable for bitcoin but less so for equities. “At this juncture in the interest rate cycle, any move to slash rates usually stems from the intent to avert a recession, which isn’t a promising sign for equities. On the flip side, persistent high rates are likely to strain corporate profit margins, presenting another challenge for stocks. Bitcoin, however, stands to gain.”

Sam Bankman-Fried on trial

On Tuesday, FTX founder Sam Bankman-Fried said in federal court in Manhattan that he was unaware that $8 billion of customer money had disappeared until just before the crypto exchange collapsed.

“In retrospect, our oversight of that was very poor,” he said on his final day of testimony. “I deeply regret not taking a deeper look into it.”

On Monday, federal prosecutors pointed to discrepancies between public comments made by Sam Bankman-Fried and the decisions he made as the crypto exchange collapsed last year.

Assistant U.S. Attorney Danielle Sassoon highlighted public comments made by Bankman-Fried in which he claimed FTX’s risk management protocols made it safer than other crypto platforms, even though this was while the company was letting Alameda Research, its own investment arm, make unlimited risky bets.

You can read the full stories of this week’s trial by Lukas Alpert here and here.

Crypto in a snap

Bitcoin 
BTCUSD,
-1.52%
is up 3.64% in the past seven days and was trading at around $34,920.47 on Thursday, according to CoinDesk data. Ether 
ETHUSD,
-2.38%
is also up at 1.89% during the same period at around $1,815.26.

Must-reads

The hunt for crypto’s most famous fugitive. ‘Everyone is looking for me.’ (The Wall Street Journal)

The crypto whistleblower at the center of the Sam Bankman-Fried storm (The Rolling Stone)