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Tech stocks are becoming increasingly correlated with Bitcoin – here’s why

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It’s a trend that’s been developing for a while now – Bitcoin has been tracking the overall stock market more closely, and particularly the tech-heavy Nasdaq. Back in April 2022, Bloomberg wrote that the Nasdaq and the BTC were at record levels of correlation at 0.6945, they speculated at the time that the cryptocurrency was no longer a very logical method for diversifying a portfolio, as it was highly correlated to traditional markets.

So, what causes the BTC to track alongside tech stocks? We’ll take a closer look at a couple of major reasons and hopefully provide some clues as to what might happen in the future with the most popular and traded cryptocurrency.

However you choose to take advantage of the cryptocurrency market, make sure you select a regulated broker with a proven track record, preferably one that provides advanced charting, analytics, and a social platform for traders to share your experiences and ideas.


Bitcoin’s growing popularity and retail investor habits

Bitcoin used to be pretty obscure in its early days after its development in 2009. The everyday trader wasn’t familiar at all with the concept until it became more popular around the beginning of 2017, when its prices started to take off and a string of positive mainstream and social media caused a strong bull run. In January that year one BTC was worth $1,100, and by December came around the value was up to $20,000.

Once retail investors got more into BTC, it was only a matter of time before the habits and attitudes of amateur traders started to impact its volatility in a similar way to tech stocks. Market sentiment has indeed become a big factor in crypto prices, and sometimes all it takes is a comment on Twitter from someone like Jack Dorsey or Elon Musk – as pointed out by Fortune.com in mid-2021 – for prices to go crazy.


Global economic conditions impact both Tech stocks and Bitcoin

During times of economic uncertainty, and especially around the time of writing (September 2022) when inflation is at an all-time high globally, and interest rates are on the move upwards from central banks tightening monetary policy, many investors will generally have shifted their focus to less risky assets and non-cyclical shares.

Non-cyclical stocks, also called defensive shares, might be companies, such as food and beverage and essential home items for example.

Once the market recovers, or is on the way back up, many investors will again turn to big tech and likely Bitcoin (BTC). The cliché that a rising tide lifts all ships may prove true here again soon enough.

Regardless, always remember that tech stocks and Bitcoin are risky assets to trade, as they are quite volatile. That’s why you should always stick to your trading plan and follow strict money management rules. Also remember that you have different ways to invest in tech stocks and Bitcoin, so do your research to select the right way to invest in these financial assets, according to your strategy and risk-tolerance.

 

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