Bitcoin diverges from tech stocks as FTX fallout continues

Bitcoin is once again diverging from its correlation with stocks as traders react to a disappointing earnings season and the latest news of FTX’s bankruptcy filing.

The biggest digital currency’s 30-day rolling correlation with U.S. stocks fell to 0.17 last week — its lowest level since November 2021 — before recovering to 0.4, according to Kaiko data. A correlation coefficient of 1 means that the assets move perfectly together.

“On any other week, crypto markets would almost certainly have seen a significant rally following last week’s inflation print, raising hopes that inflation may peak and that the Fed will slow its monetary tightening,” Kaiko researchers wrote in a note on Monday . “While crypto assets fell, the Nasdaq 100 and S&P 500 jumped a whopping 8.8% and 5.9%, respectively.”

Bitcoin and Ether, on the other hand, are trading tighter than they have in over a year. Both digital assets locked in modest gains on Monday, each rising around 1%.

Meanwhile, crypto-related stocks – such as exchange Coinbase, mining group Stronghold and technology company MicroStrategy – reported sharp falls on Monday as the FTX-fueled turmoil continued. Coinbase lost nearly 7% by noon ET, while Stronghold and MicroStrategy fell 4% and 5%, respectively. All three companies trade on Nasdaq.

“MicroStrategy, which saw the value of its 130,000 BTC holdings plunge by roughly $500 million in 5 days, recorded the biggest fall in its share prices, ending the week down 37%,” Kaiko researchers wrote. “The largest BTC investment vehicle, Grayscale Bitcoin Trust (GBTC), lost 28% of its value.”

The move added to the ever-increasing Grayscale discount, which measures the difference between GBTC’s share prices and the market value of the underlying bitcoin holdings. The discount hit an all-time low of 41% last week, according to Ycharts. Rumors that Alameda Research held significant GBTC positions likely contributed to the selling pressure, analysts said.

While crypto-related trading moves have weighed on tech stocks in recent days, Big Tech’s rally, which saw the Nasdaq rise 6% over the past five trading days, is likely to be short-lived, analysts warn.

“Tech and growth stocks have recovered somewhat in value recently, but we continue to believe that progress in the economic recovery and subsequent higher interest rates will be a headwind for technology and a rotation from growth to value could be used to reduce the technology overweight , but not abandoning supercap tech stocks altogether,” said Tom Essaye, founder of Sevens Report Research.

The resolution of crypto’s Big Tech trading patterns is a reversal of a months-long trend. In May, the correlation between bitcoin and the tech-heavy Nasdaq broke 0.8 for the first time, and bitcoin’s tandem trade to the broader S&P 500 also reached similar levels in early May. In June, the correlation between bitcoin and the S&P 500 fell to around 0.5 and has hovered there ever since, according to Coin Metrics data.

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