One of the constant narratives swirling around the cryptocurrency market and global financial systems is about how the asset class trades against other asset classes. For example, typically when stocks rally, bonds see outflows and the inverse is true as well.
Cryptocurrencies are marketed as being a 'store of value' and being more similar to gold in terms of having a fixed supply. But, in reality, cryptocurrencies seem to be a 'risk on' asset that tends to underperform when the stock market drops or encounters a period of weakness.
The most recent example is the past couple of weeks when growth stocks have been under pressure as short-term rates were rising and the Federal Reserve continues to signal a more hawkish stance. Higher short-term rates mean that growth stock's long-term growth looks less attractive to investors.
Cryptocurrencies were trending lower and eventually crashed in weekend trading, meaning they didn't provide any sort of special protection relative to the stock market. And not surprisingly as the stock market has bounced back, cryptocurrencies are starting to move higher as well.
Overall, bitcoin prices hit a high of November 8 around $69,000. Interestingly, this is when many growth stocks peaked, while the S&P 500 (NYSE: SPY) peaked two weeks later. Bitcoin eventually dropped to a low just above $42,000 on December 4, while many growth stocks bottomed on December 3 and 6. A good proxy for growth stock is theARK Innovation ETF (NYSE: ARKK) which dropped 35% since November 8.
Of course, both have put together impressive bounces off these oversold levels. Bitcoin is up more than 20%, while ARKK is up about 16%. The S&P 500 continues to outperform and is only about 1% off all-time highs. Based on recent price action, it's quite possible that the index keeps going higher into year-end as the market enters what is a very bullish time of the year in terms of seasonality. Further, these effects are felt even more in years that the S&P 500 is up by more than 20% and fund managers are underexposed and underinvested.