AI and Tech Equities Dip Amid Layoffs But Bitcoin Demonstrates More Independence

Key Takeaways

• Major tech companies, like Google and Tesla, continue layoffs in 2024.
• Rate cut delay, AI-related optimization, and human resource optimization are the main reasons.
• Tech stock weakness reveals Bitcoin’s lessened correlation with traditional markets.

The technology sector continues to experience widespread layoffs that have weakened its stock action. Companies ranging from Tesla and Google to Microsoft have reduced their workforces significantly. Tech market performance reveals that Bitcoin has become more independent; here’s what is happening.

The Wave of Tech Layoffs

Layoffs have continued since 2023 in several tech companies. Reports found human resource optimization after the pandemic hiring spree was partially the reason for the job cuts. However, tech layoffs have extended to some other sectors like finance and retail.

Tech giants like IBM, Google, and Microsoft, along with finance firms  like Goldman Sachs have reportedly reduced their staff numbers.

In 2024 alone, more than 250 tech companies have laid off over 74,000 employees, as reported  by Layoffs.fyi. The layoffs now reflect broader economic challenges and shifts in business strategies across sectors.

Reasons for Tech Stock Weakness

Layoffs have weakened the short-term outlook of tech stocks. Despite the general trend of job cuts, there is an increasing demand for AI-related skills within the technology sector, becoming a double-edged sword.

IBM CEO Arvind Krishna had previously stated  that company recruitment for some non-customer-facing positions could be substituted by artificial intelligence. 

The development of interactive artificial intelligence like ChatGPT reiterates that AI has advanced. Not only companies are keen to hire individuals who can drive innovation in this field, but they are increasingly automating redundant roles. But amid the broader technology downturn, AI stocks are also in the red. 

Research cited by Forbes  also underlines that companies are now optimizing the hiring spree from 2020 and 2021. Remote hires from the pandemic are the target of fires after the over-hiring.

Delays in rate cuts also translated to cost-cutting. With analysts now expecting only one rate cut in 2024, Fed policy has proved unfavorable to risk stocks. Rate hikes slow economic growth by discouraging spending among consumers and businesses.

But, Bitcoin as a risk asset has acted more independently.

Bitcoin Almost Independent of Tech Stocks

The cryptocurrency market, particularly Bitcoin, has maintained a high degree of correlation with the tech market as a high-risk asset class. However, it is now showing independence against the traditional financial market.

A comparison of correlation metrics by IntoTheBlock reveals that Bitcoin’s correlation with major indices like the Nasdaq 100, S&P 500, and others is significantly lower than that of Ethereum.

For instance, Bitcoin’s correlation with the Nasdaq 100 stands at 0.57, compared to Ethereum’s 0.76. This suggests that Bitcoin’s recent correction has less to do with the traditional stock market.

The Sharpe Ratio is a key metric used to assess the performance of an investment compared to its risk. It measures the excess return (or risk premium) per unit of deviation in an investment asset. A higher Sharpe Ratio indicates a more desirable risk-adjusted return. Comparing the 30-day Sharpe Ratio of Bitcoin (-0.05) to the S&P 500 (-0.22) suggests a higher negative value for the latter. In simpler terms, while both investments provided a return lower than the risk-free rate, Bitcoin was closer to breaking even on a risk-adjusted basis than the S&P 500. Tech stock indicator Nasdaq 100 was somewhere in the middle at negative 0.18.

One year back in 2023, the Sharpe ratio for Bitcoin was at 0.12 while the Nasdaq 100 was a close second at 0.11.

Bitcoin Correction Less Pronounced  

Tech layoffs have weakened its stock market. There is no one reason for the job cuts, but several factors from AI to interest rate delay have been contributing factors. Bitcoin’s correction is less correlated to the tech stock weakness in 2024 than it was in 2023.

Bitcoin’s relatively lower correlation with traditional markets and its competitive Sharpe Ratio makes it a potential diversifying investment than a comparable risk stock.

About the Author

Shraddha Sharma

Shraddha has around five years of experience as a financial journalist, focusing largely on the Asian markets. Starting her career in Mumbai, India, as a news trainee and producer, she quickly found her niche in crypto. She is keen on learning how emerging technologies affect the broader markets and enjoys explaining complex financial ideas in a way that's easy to understand.

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