Solid Tech Earnings Limit Bitcoin Bearish Bias; What to Expect Aft…

Yerevan (CoinChapter.com) — Bitcoin and tech stocks have mostly moved hand-in-hand every since the coronavirus pandemic prompted a global market crash in March 2020.

What followed later was protective measures from central banks worldwide, all of them focusing on injecting more cash liquidity into their economies. That raised the prospect of higher inflation, further driven higher by a depreciating US dollar and falling interest rate returns on government bonds. Of course, riskier assets became the major beneficiaries as investors looked for better yields elsewhere. Bitcoin boomed all across 2020 and keeps on climbing in 2021. Tech stocks climbed, as well.

But the gains also brought fears of the froth and excessive speculation. One latest example is Dogecoin, a bitcoin-like cryptocurrency that started as a joke in cryptocurrency in 2013. At times propagated by Elon Musk, the dogecoin price rallied by as much as 9,443 percent in 2021, backed by just hype and no concrete fundamental. That said, Bitcoin and tech stocks also rallied under extreme risks of major downside correction, with Seeking Alpha’s Ronald Surz recommending investors to “get off before the inevitable burst.”

The Bitcoin-Tech Stock Correlation

However, the latest corporate earnings session has provided a backstop to the ongoing market rally. According to FactSet, about 30 percent of the companies listed on the S&P 500 index have reported results so far, with 88 percent of them delivering earnings per expectations. Alphabet, which backs Google, reported strong earnings across several fronts, with YouTube revenue rising by nearly 50 percent to $6 billion.

Alphabet stock chart — Alphabet stock corrects after setting up a record high on Monday. Source: GOOGL on TradingView.com

Microsoft grew 17 percent while pushing its operation revenue up by 31 percent to $17 billion. Tesla also reported growth but a majority of its gains came from its regulatory credits and bitcoin investments.

The solid Wall Street earnings session coincided with a strong upside recovery in the Bitcoin market. The BTC/USD exchange rate climbed 18.60 percent after bottoming out near $47,044 last week. At its weekly high, the pair was changing hands for $55,794.

A stronger US stock market reduces investors’ tendency to seek profits elsewhere. In turn, that reduces the selling pressure in the Bitcoin market. Erratic, but the correlation between tech stocks and bitcoin has shown itself fully during the March 2020 rout. Back then, investors unloaded their bitcoin profits to seek cash so they could cover margin positions in other traditional markets.

More Upside Cues

Heading into Wednesday, Facebook and Apple will release their Q1 earnings report. Both Bitcoin and US stocks were wavering ahead of the said financial results, driven lower by intraday profit-taking sentiment. But expectations of continued gains persisted also as the Federal Reserve concludes its two-day policy meeting later in the day.

As CoinChapter.com covered, the Federal Open Market Committee (FOMC) will likely continue its expansionary programs, including near-zero interest rates and unlimited bond-buying.

“The post-meeting statement is likely to be little changed, other than to note the firming of momentum in activity and employment and the pick-up in headline inflation,”
JPMorgan analyst Michael Feroli wrote in a note Friday.

The Fed wants to push inflation above 2 percent. It also wants to let the inflation stay there before showing any signs of tapering. That has so far prompted investors to hedge their capital away from the US dollar and its dependent markets. For instance, yields on the benchmark US 10-year Treasury note climbed this year but remain near historically low levels.

Bitcoin…

…hopes to sustain above crucial support levels, given its growing influence on Wall Street as an inflation hedge.

Anthony Pompliano, a prominent Bitcoin advocate, wrote in his newsletter that after Tesla’s decision to sell 10 percent of its bitcoin holdings on profits, more corporates would add the flagship cryptocurrency on their balance sheets.

“The idea of proving bitcoin’s liquidity in both directions, buying and selling, will hopefully convince more CEOs, CFOs, and corporate executives that bitcoin can serve as a cash equivalent,” he wrote. “As this slowly becomes pervasive across corporate America, bitcoin’s role as a digital currency will strengthen. It is no longer a question of “if” in my opinion, but rather “when.”

Tech stocks hope to stay on an upside course owing to similar reasons.