Amazon, Alphabet (Google), Microsoft, Meta and Apple — the big tech, the five technological giants, dominate the US stock market by size and importance. In terms of their market capitalization, the tech giants (combined) already outperform the energy giants (Big Oil: Exxon Mobil, BP, Chevron and Shell). Their combined valuation exceeds $3 trillion and they account for more than 40% of the Nasdaq 100. The positive correlation between Bitcoin and big tech is already evident.
Initially, it was thought that Bitcoin would have a positive correlation with gold due to the ideological coincidences of the two promoting camps. Bitcoin, being the “digital gold”, was presented by the community as a safe haven due to the scarcity of its supply. Both the gold beetle and the militant bitcoiner share, on an ideological level, libertarian roots. They are essentially conservative and anti-statist currents. That is, in theory, both assets would be bought for the same reasons. (In theory), the intention would be the same. Which would turn both assets into behavioral twins.
The matter goes like this. The “flexible” issuance of the dollar is governed by a progressive/Keynesian view of money. That causes its value to dilute over time. A hard money system, on the other hand, preserves the value of money over time. Here the key elements are supply and non-state intervention. In this sense, the defenders of the gold standard and the promoters of the Bitcoin standard have practically identical narratives. Due to this, it may be thought that the behavior of both markets may be quite similar. It is not the case.
Why talk about gold in an article about big tech? Well, it relates to the issue of correlations. At the level of discourse, the idiosyncratic bitcoiner has always insisted that gold and bitcoin move at very similar rates. However, that notion contrasts with reality. In practice, big tech and Bitcoin have proven to be true dance partners. It seems, like it or not, Bitcoin is more of a risky asset than a safe haven. Obviously it is an asset for growth rather than stability. Its high volatility is what reveals its true nature. Why? Good because a volatile safe haven is an oxymoron.
In times of volatility and uncertainty, the investor in search of (financial) security does not take refuge in scarcity. He takes refuge in stability. This makes Bitcoin’s volatility a huge risk. During a boom speculative, volatility becomes a great opportunity. However, during a bearish period, the tables are turned.
During the pandemic, big tech and crypto were the great beneficiaries of the boom speculative caused by the stimuli from the Federal Reserve. Interestingly, the confinement boosted everything digital. In fact, Amazon, Alphabet, Microsoft, Meta and Apple have nearly doubled their total workforce in the last three years. With so much money falling from the sky, spectacular growth was possible. Big tech and crypto grew a lot in the 2020-2021 period.
During the pandemic, there was strong demand for products and services from technology companies. However, this economic reality has changed dramatically as we have returned to “normal”. In this new stage, revenues are not growing at the same rate as before. Therefore, it has been necessary to carry out massive layoffs. In fact, more than 50,000 layoffs have been announced. The only company that has not joined the staff cuts is Apple. Anyway, circumstances have changed significantly.
What does this all mean? Well it means that big tech and crypto are animals that eat the same grass. These are sectors that thrive on optimism and liquidity. Greed and risk appetite are the key in a boom speculative. But those feelings arise under certain conditions. And I am afraid that monetary policy is one of the most relevant factors in this process.
The average Bitcoin buyer, at heart, is not looking for a libertarian-style monetary insurrection. What he really wants is to make money. He wants to buy cheap today in order to sell more expensive tomorrow. This is essentially a speculative move. As simple as that. In most cases, it is not a heroic fight against the established system. Actually, it is a fight for the pocket. Which, of course, is nothing wrong. In fact, I think it’s great. I’m lovin ‘it.
Is it possible a boom speculative in the style of 2020-2021 with a tightening monetary policy? Hardly. After the largest liquidity injection in history, Bitcoin reached its current all-time high ($66K) in a period of approximately 2 years. On that occasion, the conditions were right. It was the perfect recipe. Now, however, the conditions are different. Falling into denial will only make the process more painful. Is it likely to obtain better results in less time and in much more adverse conditions? There are already people talking about a btc at $200K by the end of the year. Is that likely?
We are facing a paradigm shift at the macroeconomic level. Which naturally affects valuations. The era of cheap money is over. Because inflation got out of control and central banks have been forced to raise credit costs to reduce demand. That implies that the expense will not be the same. Recession winds are coming. And half the world is tightening its belt.
An increase in the cost of credit decreases demand. Falling demand reduces revenue. And, with reduced income, layoffs increase. Here is an important detail. Big tech valuations are typically not based on their fundamentals. They are based on projections of your future income. What is normally known as “growth”. Of course, deep down, the word “growth” in this context is nothing more than a euphemism to avoid saying that they are highly speculative assets. In other words, its fundamentals do not justify its price.
Big tech and Bitcoin are crocodiles in the same river in many ways. They are quite dependent on the greedy retailer with a taste for speculation. Now these boom Speculatives are not formed out of nothing. Unfortunately, it takes much more than will. Liquidity is needed.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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