Have Crypto Assets And Stocks Decoupled?

Many investors bemoaned the high degree of correlation between crypto assets and US stocks during the previous bull market. Following the pandemic lows of March 2020, we saw both crypto and US equities (particularly growth stocks) rallying almost in lockstep until their respective highs in November of 2021.  

Since around April of this year, we have witnessed what can only be described as a decoupling between crypto assets and tech stocks. While this might please investors in search of uncorrelated (or at least less correlated) assets to add to their portfolios, there’s a nagging question as to whether what we’re seeing is truly a decoupling, or perhaps one asset class starting to lead the other in a fundamental change of trend.  

Why is this important? Because if the Nasdaq is currently leading crypto, then the crypto bears who went short in 2023 in expectation of new lows later in the year could be in for a rude surprise. On the other hand, if it’s crypto that’s leading tech stocks, then the Nasdaq’s recent push to new yearly highs could prove to be short-lived and cause a great deal of pain for investors when the selling resumes.  

Looking at the chart, it was actually on May 10 when the Nasdaq broke to new daily highs and bitcoin BTC/USD broke to new daily lows. This was the date of the last US CPI report that revealed core inflation to be stickier than the broader reading, which was in line with market expectations on the monthly (0.4%), and slightly lower than expected on the yearly reading (4.9% to market expectation of 5.0%). 

Investors More Bullish on AI 

There’s also the fact that crypto has, as a whole, fallen out of favour with institutional investors, particularly since the FTX debacle earlier this year. Many of the investors who showed an interest in bitcoin as digital gold and Web 3.0 as a disruptor to tech incumbents back in 2020-2021, have now turned increasingly bullish on AI and its related stocks.  

At least 6 of the Nasdaq’s top ten companies by market capitalisation are directly involved in AI and this recent rally in tech stocks has been remarkable as much for its narrowness as for its timing. As such, the divergence between the price action of crypto assets and tech stocks can also be said to be related to competing narratives and hype cycles between these two assets. 

The Bitcoin Halving 

This brings us to the coming bitcoin halving event early in 2024, which has proven to be one of the most reliable fundamental indicators of capital flooding into crypto markets. This is because the halving of bitcoin’s supply is programmed into the protocol itself to occur every four years, so is expected by all participants. If the sentiment around crypto is currently bearish, the bulls favouring AI, then at least we do know that, at least for crypto, the sentiment is due to change as the halving draws near.  

Bitcoin Leads 

On the question of which of the two is currently leading the other, we can only look back to prior price action, and the relative youth of crypto as an asset class means that we don’t have much meaningful history to go on. The history that we do have access to does, however, show that bitcoin does tend to lead the Nasdaq.  

Two cycles ago, bitcoin topped-out in December of 2017, whereas the Nasdaq peaked in August of the following year. Then, bitcoin bottomed on December 10, 2018, and the Nasdaq followed suit on the week of December 17. The same holds during the Covid crash of 2020, with bitcoin bottoming on March 9, and the Nasdaq doing the same two weeks later on March 23. More recently, bitcoin’s price peaked on the week of November 8, 2021, whereas the Nasdaq reached its own high-water mark on November 22. Currently, the Nasdaq’s own weekly low precedes bitcoin’s by a month (October 10, 2023 versus November 7, 2023). It remains to be seen whether further lows are in store, and indeed which of the two symbols are on the right side of the broader trend.  

Technical Picture 

Bitcoin currently finds itself at a crucial juncture, trading as it is just above both its 20-week and 200-week moving averages at $25,700 and $26,300, respectively. This also coincides with bitcoin’s 50-day moving average currently at $26,000. Bitcoin has edged closer to these three important support levels following three consecutive weekly declines. As things stand, the bears can knock the number one crypto down decisively below these important levels and firmly back into a longer-term bearish trend almost in one go.  

The Nasdaq’s technical picture is almost the exact opposite. Following two consecutive green weeks it recently broke above all major moving average levels and set a weekly higher-high relative to the August 22 peak, all without venturing into overbought territory. This means that the index’s yearly uptrend remains intact, with the next bear market high in view between 14,800 and 15,200. 

Currently, the levels to watch are bitcoins 50-day, 20-week, and 200-week moving averages. Failure to hold these really shifts the momentum in favour of the bulls. Also, keep an eye on the timing of moves for further insight into which of these two assets is leading. 
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