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Bitcoin Leading Indicator For Tech Stocks, Analyst Says

A crypto analyst pointed out the correlation between BTC and Nasdaq – in which Bitcoin is a leading indicator.

CNBC analyst Brian Kelly pointed to a correlation between Bitcoin and Nasdaq’s tech index. The two assets seem to trade in lockstep. Kelly calls himself a Bitcoin televangelist and points to a chart showing BTC and Nasdaq together. Moreover, BTC appears to lead the tech index by “about 5 to 10 days.”

A 30-day rolling correlation between Bitcoin and Nasdaq is about 47%. That is the highest correlation since September, since BTC and the Nasdaq bottomed.

He also believes that both assets will trade higher shortly.

It might be reasonable to assume that the Nasdaq has bottomed. As we look into the Q1 of 2022, we’ll get a bottom of both Bitcoin and the Nasdaq. Then, they may trade higher together.

Kelly sees similarities between the most significant crypto and the stock index focused on tech stocks. Nasdaq Composite, which tracks over 3,000 companies, attracts investors looking for exposure to the tech sector. That’s because tech stocks make up about 50% of the index, weighted according to capitalization. Bitcoin attracts similar investors, he believes.

Bitcoin – Risk Asset?

Most investors seem to agree with the view that BTC (and other cryptos) are risk assets. Much of the demand on crypto hinges on bets about their future use cases. These use cases rely on new tech development that will drive demand forward. The Lightning Network for Bitcoin, innovative chain solutions for Ethereum or NFTs for Solana; tech is everything.

Crypto also has ties to big tech in another way. Namely, many big tech players are developing crypto and NFT integration. This includes Jack Dorsey’s Block, but also other major tech companies. That is another reason why Bitcoin and the Nasdaq may become more correlated. Moreover, as more big players realize this, this correlation will strengthen.

As Bitcoin gets more institutionalized, it is starting to get more correlated with traditional markets.

Many crypto investors discussed the effect of big institutions jumping into the crypto space. On the one hand, this will boost demand. But, on the other hand, these institutions, with their vast reserves of wealth, would have more impact on the price.

This impact is already seen, especially during the recent Bitcoin crash. After the Fed’s rate hike announcement, many institutions dumped crypto, expecting it to behave like tech stocks. With most of their returns in the distant future, tech stocks are susceptible to interest rates.

BTC – Digital Copper?

Kelly also said that BTC could be a “pro-cyclical, risk-on inflation hedge”. The term refers to investments (usual commodities) that serve as a hedge against inflation and benefit from growth. If that position were actual, it would make Bitcoin perform similarly to things like copper.

The price of copper surged during the pandemic. It went from $2.3 per ounce in March 2020 to a historic $4.4 in May 2021. Like Bitcoin, copper is scarce since it is a commodity. BTC is much shorter, however, making it likely to outperform copper. On the other hand, copper benefits from new tech, especially the coming transition from fossil fuels to EVs.

The commodity with a wide variety of industrial purposes is also a “risk-on inflation hedge”. A Goldman Sachs analyst said Bitcoin is more like a “risky digital copper” than gold as an inflation hedge.

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However, analysts still don’t know the proper role of crypto in a traditional portfolio. Some even warned that BTC might be decoupling from Nasdaq. One analyst even pointed out that Bitcoin’s inverse correlation with Treasury yields. That is the opposite of what risk assets usually do.

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