As the tech earnings season kicks into gear, bets are on as to how the crypto markets might react to bullish or bearish second-quarter results.
The battered crypto markets could do with a boost amid a string of disasters this year, and in fairness, the week has started off on a strong note.
Total market capitalisation surpassed the $1tln mark on the back of a 4.21% day-on-day rally.
That’s still a sobering $2tln below 2021 highs, but a welcome figure in a time when good news is in short supply.
But despite a bullish Monday, if — and this is a big if — crypto’s perceived correlation with tech stocks is a given, then analysts’ forecasts are a bit of a buzzkill.
“The tech bears have been vocally negative on the tech sector in 2022 and have been right (so far) with worries about a recession on the horizon, the Fed chasing skyrocketing inflation with aggressive rate hikes, Covid pull forward, and a deteriorating demand picture on the horizon,” according to Wedbush analysts Daniel Ives and John Katsingris.
There could be “pain ahead” for Zoom, Docusign and other pandemic-era pull forwards, though on a brighter note, Ives and Katsingris see potential in the cloud computing and cybersecurity segments.
Favourites in the cloud space include Microsoft and Salesforce, while a raft of cybersecurity firms including Palo Alto, Fortinet and Checkpoint are expected to post strong results.
Apple is also pitched as a favourite.
Moshe Katri, managing director of equity research at Wedbush, maintains a neutral position in the run up to IBM’s impending second-quarter results, citing a slowdown in legacy-based infrastructure deals combined with a trio of forex headwinds, wage inflation and interest rate hikes.
In another bearish signal for the tech industry, a raft of hiring freezes and workforce reductions has swept across Meta Platforms, Google’s parent company Alphabet, crypto exchange Coinbase and Spotify, to name just a few.
Meta CEO Mark Zuckerberg cut hiring plans by 30%, warning workers to prepare for “one of the worst downturns that we've seen in recent history”.
Will crypto correlation continue?
The extent of correlation between crypto and the stock market is a point of contention.
Joel Kruger of cryptocurrency exchange LMAX Digital told Proactive: “We think crypto is still correlating to global risk sentiment. And so, any upturn in performance of US equities is likely to have a positive impact on crypto assets.”
However, according to Josh Answers of The Trading Fraternity: “Correlation is whipsawing. Over the last 30 days crypto has been the least correlated with the NASDAQ which is weird because the correlation was almost perfect for all of 2021.”
Analysis by Stockcharts.com also shows a strong correlation between the BTC/USD pair and the tech-heavy S&P500 index leading into May 2022 (more recent data is pending).
Correlation was tighter than ever in early 2022 — Source: stockcharts.com
But according to David Weisberger, CEO and founder of trading platform CoinRoutes, correlation is driven by macro financial tightening trends and interest rate hikes, thus large-cap tech earnings will have little impact on Bitcoin and the wider crypto space.
Weisberger told Proactive: “I don’t think earnings-related equity moves will matter much, UNLESS they are very negative. In such an event, it could cause people to think the Fed might tighten less. That would be seen as bullish for crypto.”
Mahin Gupta, CEO of self-custody wallet Liminal, is also hesitant to draw direct correlation, though he remains generally upbeat for certain segments of the market.
“Decentralised platforms are positioned well moving forward. With recent turmoil on centralised finance (CeFi) exchanges, more businesses and individuals are looking for greater custody and control over their assets,” Gupta told Proactive.
So with a packed diary of tech earnings due in the coming days, this week could be a prime opportunity to see just to what extent crypto moves with its traditional stock market counterparts.