Key Points
- JPMorgan analysts have noted a high correlation between Bitcoin and small-cap tech stocks in the Russell 2000 Index.
- The correlation between crypto and smaller tech stocks is reportedly due to digital currencies’ reliance on venture capital and smaller tech companies focusing on blockchain/crypto technological innovations.
Analysts at JPMorgan have indicated a significant correlation between Bitcoin and small-cap tech stocks in the Russell 2000 Index.
This observation was made based on data from the Russell 2000 tech sector. Historically, a correlation between crypto and equity markets has been observed. However, the JPMorgan team extended this analysis to identify which equity sectors are most closely associated with crypto.
Understanding the Correlation
The Russell 2000 Index is a US stock market index that monitors the smallest 2,000 stocks within the larger Russell 3000 Index.
This index is known for incorporating growth-oriented companies, providing investors with exposure to potentially lucrative stocks. The performance of each stock is determined by its market value relative to the total capitalization of the index’s shares.
This subject was analyzed and discussed following a simultaneous correction of US tech stocks and Bitcoin in Monday’s market.
The analysts, led by Managing Director Nikolaos Panigirtzoglou, recognized that this correlation also exists with altcoins, but it is highest with Bitcoin.
They suggest that the correlation of crypto to smaller tech stocks, as opposed to larger ones, may be due to digital currencies’ dependence on venture capital. It could also be because smaller tech companies are focused on blockchain/crypto technological innovations.
Fluctuations in Crypto-Equity Correlation
Two factors are reportedly responsible for this outlook: the role of retail investors with access to leverage in both markets and the tech-centric nature of both sectors.
It is important to note that the correlation experiences variations over time. However, the peak is observed whenever the tech sector undergoes major shifts.
For instance, the correlation of BTC with equities became more pronounced in 2020 and 2024. This occurred when the tech sector performed exceptionally well. The same pattern was observed in 2022 when the industry experienced sell-offs.
“This pattern supports the idea that crypto is fundamentally linked to tech and when the tech sector is subjected to a more significant reassessment by equity investors,” the analysts stated.
Meanwhile, Bitcoin has bounced back, reclaiming a price level of $105,000.
The coin was trading at $105,038.21, corresponding to a 2.6% increase in the last 24 hours. This outlook comes after the Federal Market Open Committee (FOMC) meeting, in which policymakers decided to keep interest rates at 4.25-4.5%.
The news has driven global markets and Bitcoin to bullish levels, with the total crypto market cap reaching $3.5 trillion. Market experts have set the next price targets for the flagship cryptocurrency at $112,375 and $116,085. Institutional support for Bitcoin is increasing and is a significant catalyst to push the coin to this height.
The coin may record more jumps soon with the different talks about strategic Bitcoin reserves among corporate firms and governments.
