Crypto prices have rallied across the past week.
DreamstimeBitcoin and other digital assets were higher on Friday, but action in the stock market was set to shake up sentiment for risk-sensitive assets, threatening to sweep the legs out from under the recent crypto rally.
The price of Bitcoin has gained 2% over the past 24 hours to $23,200. The largest digital asset advanced as far as $24,200 at the height of a rally this week that has taken the token almost 15% higher and brought the market capitalization of the crypto space again back above $1 trillion. Bitcoin is now far above its recent bottom below $18,000, which it hit in the depths of a dramatic selloff in mid-June.
Digital assets remain down in the dumps after a price crash and amid fears of a new “crypto winter,” with Bitcoin trading at around one-third its all-time high from November 2021. But a return for an appetite for cryptos of late has raised the prospect that the bottom is in, and that prices could continue recovering. The market cap of crypto was nearly $3 trillion less than nine months ago, so there is a long road back.
“Bitcoin traders must have been starting to feel like the dark days were potentially behind it. No new negative headlines, resilient price action and performing well in challenging markets,” wrote Craig Erlam, an analyst at broker Oanda, in a note.
But earnings from tech companies threaten to derail the digital asset rally. Cryptos should, in theory, trade independently of mainstream financial markets, but have shown themselves to be largely correlated with stocks, and especially tech stocks, following swings in the S&P 500 and Nasdaq indexes. While the tech-heavy Nasdaq climbed 1.4% on Thursday, futures tracking the index signaled losses ahead as the week draws to a close.
To blame, in part, are corporate earnings late Thursday from social media group Snap (ticker: SNAP), which reported slowing sales and said it wouldn’t provide forecasts for its performance in the current quarter. This has raised the hackles of investors already fearful of an economic slowdown as the Federal Reserve fights inflation with more aggressive monetary policy, including much higher interest rates.
“Markets will severely punish richly valued tech stocks at the first sign of trouble, and there is now some risk to the broader equity markets from the [rest of Big Tech] yet to report,” Jeffrey Halley, an analyst at broker Oanda, wrote in a note. “Inflation remains and will remain stubbornly high, geopolitical risk abounds, growth is slowing around the world, and recession risks are rising. I can’t see how that is a productive environment for equities.”
Big Tech earnings have the ability to drag the Nasdaq around, as well as the wider stock market, so any significant changes in investor sentiment from results at major tech companies would likely bleed into the crypto space. Twitter (TWTR) earnings are due Friday, before Apple (AAPL), Alphabet (GOOGL), Amazon.com (AMZN), and Microsoft (MSFT) report results next week.
Other cryptos beyond Bitcoin were even stronger. Ether rose 8% to $1,600 as the token underpinning the Ethereum blockchain network continued to outperform its larger peer. Smaller tokens, or altcoins, were somewhat more muted, with Solana up 5% and Cardano 2% higher. Memecoins showed much of the same, with Dogecoin and Shiba Inu climbing 3% and 4%, respectively.
Write to Jack Denton at jack.dentondowjones.com
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