COLUMN-AI craze leaves crypto for dust: McGeever

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(Views expressed here are those of the author, columnist for Reuters.)

By Jamie McGeever

ORLANDO, Fla., May 31 (Reuters) – Bitcoin is undeniably having a great year, but is losing momentum just when you might have expected it to kick into high gear.

Its traditionally strong and positive correlation with technology stocks, in particular “mega tech” and growth stocks which have exploded in recent weeks, has completely collapsed.

Bitcoin’s rolling 30-day correlation with the Nasdaq last week fell to its most negative in six months, and its correlation with the NYSE FANG+ TM index of mega tech and growth stocks dipped to its most negative in almost four years.

The recent resurgence of investor optimism that the boom in artificial intelligence (AI), ChatGPT software and advanced microchip technology will transform economies is driving the rise of Big Tech.

You might have expected Crypto to roll over the tail of the coat, but that’s not the case. Bitcoin peaked above $31,000 in mid-April for a nearly 90% year-to-date gain, but is now trading at $27,000, trimming its 2023 gains to around 63% .

As billions of dollars have poured into Big Tech over the past six weeks, bitcoin trading volumes and demand have plummeted.

StoneX analyst Matt Weller says there just doesn’t seem to be a compelling reason to buy bitcoin right now and the AI ​​boom still has legs.

“ChatGPT is what crypto wants to be an instant-use mass product with huge adoption rates,” he said, adding, “Crypto has lost its luster amid this gold rush. . Or should I say, the AI ​​Rush.”

THE MAGNIFICENT SEVEN

Bitcoin, broader crypto assets, and tech stocks have traditionally moved in tandem on the assumption that they will all be fundamental building blocks for the disruptive, growth-enhancing, and efficient economies of the future.

Weller believes the divergence really widened on April 25 when Microsoft became the first of the US tech giants to report better-than-expected quarterly results.

The story continues

Since April 25, the NYSE FANG+TM index of big tech and growth stocks has jumped 24%, nearly three times the broader Nasdaq. Bitcoin, on the other hand, is down around 1% in more erratic trading.

Not all that floats mega tech is the floating boat of bitcoin.

The AI ​​boom has accelerated despite rising bond yields and discount rates. This highlighted bitcoin’s underperformance and strongly suggests that outside of the rarefied world of Big Tech, investors are much more discerning.

Indeed, according to Barclays analysts, only seven US tech stocks have generated all of the positive returns in the S&P 500 so far this year.

Zooming out, if bitcoin is the dollar hedge its enthusiasts claim it is, then it faces headwinds from a “higher for longer” Fed and rising US yields pushing again. the dollar on the rise.

MARGINAL DEMAND

Analysts at retail research firm Vanda Research point out that while retail investors have only been “marginal” participants in the recent AI and tech boom, they have grown even colder on crypto assets.

Their flow data shows that the rotation of crypto stocks to AI names has pushed crypto inflows towards post-pandemic lows, up to $3.6 million a day, from comfortably over 10 million. dollars a day a few weeks earlier.

“Should the outperformance of AI stocks continue, we expect retail traders to start looking for other names more aggressively… further reducing demand for crypto names,” Vanda analysts wrote last week.

Vanda’s Marco Iachini said he was surprised that cryptocurrencies hadn’t kept up with technology higher. They will catch up at some point, but not before the AI ​​rally first spreads to smaller-cap tech and growth stocks.

How much can bitcoin rally? Standard Chartered analysts believe it could hit $100,000 by the end of 2024. The so-called “crypto winter” may be over, but it would take a dramatic turnaround in investor sentiment and market sentiment. use of crypto to make this a reality.

(By Jamie McGeever; Editing by Sam Holmes)

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