Monday witnessed a simultaneous downturn in U.S. technology stocks and cryptocurrencies, prompting JPMorgan to highlight the correlation between these two asset classes.
Analysts from the firm observed that small cap tech stocks, particularly those in the Russell 2000 tech sector, show the highest correlation with cryptocurrency markets.
JPMorgan's analysis pointed out that both equity and crypto markets have been largely driven by retail investors, who have had significant access to leverage in both domains.
Additionally, the markets have been influenced by technological advancements, with tech stocks gaining a larger share in major equity indices and cryptocurrencies relying on blockchain innovation.
The correlation is more pronounced with bitcoin than with altcoins, though it is notably strong with both. This is attributed to the reliance of crypto on venture capital and the fact that blockchain and crypto technology innovations are typically associated with smaller tech firms rather than the largest ones.
The correlation between crypto and U.S. equity markets tends to fluctuate over time, with higher correlations observed during periods when technology is a key driver of market performance.
For instance, the correlation was notably higher during 2020 and 2024 when tech stocks outperformed other sectors, and in 2022 when tech was the weakest sector.
