What Is Bitcoin’s Correlation with Tech Stocks?

More often than not it seems that Bitcoin’s price moves up and down in tandem with the Nasdaq market in general and specifically with tech stocks. What is Bitcoin’s correlation with tech stocks? Will understanding this help you trade or invest in the leading cryptocurrency? When two things are correlated like the price of crude oil and the US dollar this is because oil is priced in dollars on international markets. The old Latin expression post hoc, ergo propter hoc means after this therefore because of this. The fact is that this often does no apply to situations in real life. Two end results may only be related in that they are caused by the same thing and not because one causes the other. Such seems to be the case with the Bitcoin to tech stock correlation.

What Do Tech Stocks and Bitcoin Have to Do With One Another?

When artificial intelligence moved from a dream to a reality the tech companies involved in this field saw their stock prices soar. Such was especially the case with Nvidia which makes the kind of complex computer chips needed to make AI work. Their stock price nearly doubled. Microsoft stock went up by about 10% because of its position as a leader in this field but only by about 10% because it is such a large company with so many irons in the fire.

Another factor that has recently drive up tech stocks is the fact that inflation numbers are finally coming under control. This means that the US Federal Reserve is now more likely to lower interest rates before the end of 2024. The prospect of lower interest rates typically leads to an increase in risk appetite in the stock market and that generally benefits tech stocks. The prospect of lower interest rates and increase risk appetite also tend to benefit crypto assets including Bitcoin. Here seems to be the correlation between Bitcoin and tech stock prices. Both of these kinds of assets become more attractive to investors and traders when they are less worried about things like a looming recession or some other economic, social, or political calamity.

How Reliable Is the Tech Stock to Bitcoin Correlation?

Bloomberg published and article about Bitcoin’s correlation with tech stocks recently. They noted that the correlation has gone up recently to nearly 0.50, which is its highest since last year. A correlation of 1.0 means that two things are moving in lockstep and a correlation of minus 1.0 means they are moving exactly opposite of each other. A 0.50 correlation is on the border between a low and a moderately positive correlation. A correlation coefficient of more than 0.90 is needed for two things to be strongly correlated. The highest correlation between Bitcoin and tech stock prices was when the Fed began to raise interest rates in early 2022 when it went to 0.80. Between then and now the correlation has also fallen into the 0.00 to 0.10 negative range meaning there was virtually no price correlation.

What Does a Tech to Bitcoin Price Correlation Tell You About Bitcoin Investing?

When a Bitcoin to tech stock price correlation appears to be based on increased or decreased risk appetite we are seeing one or two things. One could be simply that there are investors and traders of both Bitcoin and tech stocks who tend to read markets in a similar fashion. They jump in and trade or invest when they think that the market promises healthy returns and they get out when they see increased risks. Alternatively, some folks are investing in and/or trading both markets and using the same reasoning for both sets of investments or trades. To date there does not seem to be any evidence that traders in either arena better at anticipating market changes for, if they were, those would be the folks to imitate. There is no real fundamental basis for using this relationship to guide your investing or trading. The better choice is to key on the financial news that tends to drive both markets.

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