Speculative stocks on Monday had a rough day, as did Bitcoin and other cryptocurrencies. To some market-watchers, that’s no coincidence.
The 100-day correlation coefficient of Bitcoin and the S&P 500 stands at 0.33, among the highest readings of the year. That means that when stocks move up, Bitcoin is likely to do the same, and vice versa. (A coefficient of 1 means the assets are moving in lockstep, while minus-1 would show they’re moving in opposite directions.)
“The recent drawdown in Bitcoin and the rest of the cryptocurrency ecosystem has been tied to the selloff in the more risky growth names,” Art Hogan, chief market strategist at National Securities, said by phone. “So you’re seeing cryptocurrencies come off and you’re seeing the high-flying growth names come down.”
Crypto proponents have long argued that Bitcoin and other digital assets, on account of their being an idiosyncratic asset class, could act as hedges against wild swings in other areas of the financial market. That proposition is currently being tested as more speculative areas of the market come under pressure amid expectations interest rates could climb higher much sooner than previously expected.
On Monday, losses picked up in very-high-priced technology names, including companies whose expectations for growth have been pushed out further into the future. That’s happening as the bond market has started to price in higher odds of rate hikes next year after President Joe Biden picked Jerome Powell for a second term at the head of the Federal Reserve.
Bitcoin lost as much as 6.5% during Monday’s session. The biggest cryptocurrency is down almost 20% from an all-time high reached Nov. 10. Prices stabilized on Tuesday, with the digital token gaining roughly 2% to $57,420 as of 1:59 p.m. in New York.
“The big-cap tech names have become synonymous with the risk-on/risk-off trade. When the big-cap tech names move in a significant way, other risk assets move in tandem,” said Matt Maley, chief market strategist for Miller Tabak + Co.
