Bitcoin rally shows that cryptocurrencies follow tech stocks

The mention of crypto at a holiday party likely stoked talk of crisis, fraud and the end of an era. But with everyone back at work, the biggest digital currency of them all — bitcoin — is ripping through a nine-day rally.

Bitcoin rose as much as 4.5% on Thursday to trade around $18,356, its highest since early November, when the first signs of trouble at the FTX exchange began a tale of bankruptcy and criminal charges that has decimated the crypto industry. The cryptocurrency is on pace for its longest winning streak since the heydays of July 2020, Bloomberg data show.

Other coins also advanced, with Ether jumping more than 5.6% at one point to cross above $1,400 before paring its gain. But Wall Street, rather than forecasting a sudden renewal of crypto mania, sees the gains as a result of a change in investor sentiment that is lifting technology shares and other risky holdings.

“Seems to me that Bitcoin is moving higher in sympathy with stocks/risk assets,” said Jake Gordon at Bespoke Investment Group. “The most interesting thing is that the run in bitcoin is coming out of a very tight range since the whole FTX saga too. Next few days will be a good test if we take out the December highs.”

Bitcoin spent most of last year trading in tandem with stocks, especially tech companies’ shares. They all got hit when the Federal Reserve began a campaign of raising rates and reducing liquidity to arrest the fastest inflation in decades.

The correlation broke off when FTX collapsed and cryptocurrencies plunged, only to return in the new year. The S&P 500 has added more than 3% in 2023, while the tech-heavy Nasdaq 100 has advanced roughly 4%.

“The markets so far this year have had a risk-on tone and that’s what’s helped crypto. It’s trading more on risk factors than really any fundamentals,” said Chris Gaffney, president of world markets at TIAA Bank. He added that bargain hunters may be wading through the crypto wreckage that followed a months-long selloff.

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