Blue chip tech stocks have earnings reports out this week. Markets are watching with great interest as online ad sales drop and investors go risk off. Could it impact cryptocurrency?
Word on the street is big tech earnings by FAANG companies for quarter two might disappoint. The question is if this will have an impact on the broader market and, consequently – cryptocurrency.
Apple and Amazon will follow with reports Thursday.
Though their earnings won’t directly impact cryptos like Bitcoin (BTC) and Ether (ETH), crypto markets may eye tech earnings to get a better handle on the Q3 outlook.
The correlation between cryptocurrency and tech stocks over the last year has been close and tightening. So long as Bitcoin and its peers don’t decouple from the NASDAQ Composite, MAANA earnings could be a window onto how crypto will perform.
After Snapchat reported disappointing earnings due to poor ad monetization, MAANA stocks took a hit. SNAP shares fell 25%. Markets worry Facebook and Twitter will report an earnings miss for the same reason. Netflix missed Zack’s Consensus Estimate for earnings in quarter two by six percent.
As the nation moves on from coronavirus, the lockdown era digital advertising tailwind may be at its end. Adding to Silicon Valley’s woes is fierce competition for user attention from TikTok.
The question for crypto market watchers is, will the correlation between cryptocurrency and stocks continue unabated? If so, a tech stock plunge after Q2 earnings are out could create a broad headwind for crypto prices.
Bitcoin price has been correlated with the U.S. 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?
As U.S. stock indices fell in late April, so did the price of bitcoin on crypto exchanges. That sent the Bitcoin-to-stock prices 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 Bitcoin price and the U.S. equities benchmark, the S&P 500 Index, at 0.49. At that 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, those 0.49 and 0.53 figures represent a strong correlation.
The correlation figures mean as often as not, Bitcoin price moved along with major U.S. stock prices over the last year-and-a-half. That does not prove the price of either caused the other to move.
It also doesn’t prove the factors in determining the market’s price for these assets are the same. But the correlation strongly implies shared determinants of market demand.
For example, a study by a search engine optimization firm, during the wild and volatile 2017 Bitcoin bull market, SEM Rush found a 0.91 correlation between Bitcoin’s price and Google searches for “bitcoin price,” exactly as one might expect.
It’s impossible to be certain what will happen next. But the new confluence of factors will be an exciting test of the fundamental Bitcoin thesis as a macro hedge, inflation hedge, safe store of value, and a way to de-risk investors’ portfolios with asset class diversification.
Econ, finance, history, and politics nerd. Bachelor of Business Administration. Majored in Entrepreneurship. Wesley loves blockchain and hashbrowns. Contact Wesley: LinkedIn
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