Bitcoin's Performance Linked to Small Tech Stocks, JPMorgan Study Finds
While the relationship between cryptocurrency and the stock market is often discussed, a new analysis from JPMorgan sheds light on a specific connection: Bitcoin's strong correlation with small-cap tech stocks. This finding, revealed in a report released on Wednesday, suggests that Bitcoin's price movements are more closely tied to the fortunes of smaller, innovative tech companies than to the broader market.
Decoding the Correlation: Why Small-Cap Tech?
JPMorgan's analysts, led by Managing Director Nikolaos Panigirtzoglou, found that Bitcoin's correlation is highest with the Russell 2000 tech sector, an index that tracks the performance of the smallest 2,000 stocks within the broader Russell 3000 Index. This correlation holds true for both Bitcoin and altcoins (cryptocurrencies other than Bitcoin), although it's even stronger with Bitcoin.
"The fact that crypto is more correlated with smaller rather than the largest tech stocks makes sense due to the crypto reliance on VC and due to blockchain/crypto technological innovation typically being the focus of smaller rather than the largest tech companies," the analysts wrote.
A Shared DNA: Retail Investors, Leverage, and Tech Innovation
The correlation between crypto and equities has remained consistently positive since the pandemic, driven by the active role of retail investors, who can leverage their investments in both markets, and the shared technological underpinnings of both sectors.
When Tech Shifts, Crypto Follows: Peaks and Valleys in Correlation
JPMorgan's analysis reveals that this correlation tends to peak during periods of significant shifts in the tech sector. For example, in years like 2020 and 2024, when tech stocks outperformed, or in 2022, when they faced a sell-off, Bitcoin's correlation with equities became more pronounced.
The analysts believe this pattern indicates that crypto is "fundamentally linked to tech," and that major reassessments of the tech sector by equity investors tend to have a ripple effect on the crypto market.