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Stock Market Crashes While Crypto Climbs: Correlation or Coincidence?

Published October 26, 2023 2:33 PM
Josh Adams
Published October 26, 2023 2:33 PM
Key Takeaways
  • Tech stocks took a beating as crypto rose.
  • Another example of crypto decoupling from traditional equities.
  • The crypto pump has also included riskier meme tokens.

Major tech stocks took a beating on Wednesday, October 25, wiping over $280 billion from giants like Alphabet, Meta, and Amazon. The so-called “magnificent seven” – Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia, and Tesla – saw significant declines, dragging down the broader market. 

Except for Microsoft, these tech titans experienced sell-offs ranging from 1.9% for Tesla to a whopping 10% plummet for Alphabet, wiping $180 billion off of the latter’s market cap. But does the recent pump in crypto prices have anything to do with it?

A Bad Day For Tech Stocks

On Wednesday, Meta, the parent company of Facebook, experienced a nearly 4% decline in its stock price. The Dow Jones slipped by 0.3%, while the S&P 500 plunged 1.5%, and the Nasdaq suffered a steep 2.5% drop, its worst in eight months. Meanwhile, the S&P 500 and Nasdaq closed at their lowest points since May.

Meanwhile, the crypto market seems to be on the upswing. Bitcoin (BTC) has surged over 20% in the last week and 31% in the past month. Ethereum (ETH) and other major cryptocurrencies like BNB have also posted gains recently. Even meme coins like Dogecoin have pumped, rising 28% in seven days.

This bifurcation between sinking tech stocks and buoyant crypto assets raises an interesting question – could there be a relationship between the two trends? The decoupling has rekindled curiosity about the chance to diversify with Bitcoin and other cryptocurrencies.

Some speculate that crypto is benefiting from a “flight to safety” as investors seek stable assets amid tech stock volatility. The idea is that Bitcoin and other decentralized cryptocurrencies are seen as a hedge against turbulence in traditional markets. Their fixed supply and independence from governments can make them attractive when equities turn sour.

Meme Tokens Blow Up The Flight To Safety Theory

However, the recent strength in highly speculative meme coins pokes holes in this theory. Assets like Dogecoin (DOGE) are hardly a bastion of stability or safety. Their continued rallies, even as blue chip tech names crumble, suggest other factors may be at play.

Doug A. Boneparth, President at Bone Fide Wealth, and a member of the CNBC Advisor Council, sarcastically posted : “Today was simply a classic flight from risky tech stocks into the safe havens of crypto and meme coins.” The joke is, for anyone who doesn’t get it, that crypto and meme coins are anything but safe.

It’s possible the trends are entirely coincidental. Or a falling stock market and inflation fears could be driving investors to make riskier bets. Then again, crypto traders may simply be riding positive momentum and have little regard for equities.

Crypto Hasn’t Always Been The Winner

However, even though the recent divergence shows cryptocurrencies rising and traditional stocks falling, this hasn’t been  a consistent trend. 

In May 2023, Bitcoin experienced a monthly decline for the first time that year, while the Nasdaq 100, packed with major tech companies, surged by nearly 8% due to the excitement surrounding artificial intelligence.

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