Apple and Amazon Q2 Earnings Reports Coming In: Could This Affect Crypto?

The word on the street is that big tech earnings from FAANG companies for the second quarter may disappoint. The question is whether this will have an impact on the wider market and thus also cryptocurrency.

Apple and Amazon will follow with reports on Thursday.

Big Tech “FAANG” Companies Q2 Earnings Expectations Are Gloomy

While their earnings won’t directly impact cryptos like Bitcoin (BTC) and Ether (ETH), crypto markets can look to tech earnings to get a better handle on the outlook for the third quarter.

The correlation between cryptocurrency and tech stocks over the past year has been tighter and tighter. As long as Bitcoin and its peers do not decouple from the NASDAQ Composite, MAANA earnings could be a window into how crypto will perform.

After Snapchat reported disappointing earnings due to poor ad monetization, MAANA shares took a hit. SNAP stock fell 25%. Markets are concerned that Facebook and Twitter will report a loss of revenue for the same reason. Netflix missed the Zacks Consensus Estimate for Q2 earnings by six percent.

As the nation moves on from the coronavirus, the tailwind of digital advertising may be at the end of the lockdown period. Fierce competition for user attention from TikTok is adding to Silicon Valley’s woes.

The question for crypto market watchers is, will the correlation between cryptocurrency and stocks continue unabated? If so, a drop in the tech stock after second-quarter earnings are out could create a major headwind for crypto prices.

Bitcoin price has been correlated with the US stock market index, the S&P 500, for over a year now. With crypto and stocks in a bear market, is Bitcoin a hedge or a risk asset?

Bitcoin stock price correlation strengthened into Q2

As US stock indexes fell in late April, so did the price of bitcoin on crypto exchanges. That sent the Bitcoin-to-stock price correlation up to a record two-month rolling high of 0.53, according to Dow Jones market data.

In March, crypto analytics firm Arcane Research clocked the 90-day correlation between the Bitcoin price and the US stock benchmark, the S&P 500 index, at 0.49. At the time, an Arcane newsletter reported:

“Bitcoin’s correlation to the S&P 500 has only been higher for five days in BTC’s history, showing that the current correlation regime is unprecedented in BTC’s history.”

On a scale of zero to one, these numbers of 0.49 and 0.53 represent a strong correlation.

The correlation figures more often than not mean that the Bitcoin price has moved in tandem with major US stock prices over the past year and a half. It does not prove that the price of one caused the other to move.

Nor does it prove that the factors for determining the market price of these assets are the same. But the correlation implies strongly shared determinants of market demand.

For example, a study by a search engine optimization firm, during the wild and volatile Bitcoin bull market of 2017, SEM Rush found a correlation of 0.91 between Bitcoin’s price and Google searches for “bitcoin price”, just as one would expect.

It is impossible to be sure what will happen next. But the new confluence of factors will be an exciting test of Bitcoin’s fundamental mission as a macro hedge, inflation hedge, safe store of value and a way to de-risk investors’ portfolios with asset class diversification.