A visual representation of Bitcoin.
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Cryptocurrencies rose this week even as U.S. equities briefly retreated from their new year rally and a major crypto lender submitted a long awaited bankruptcy filing.
By comparison, two of the three major stock averages were on track to post a losing week, which has been shortened for the Martin Luther King holiday. The S&P 500 and Doe Jones Industrial Average were last down 0.9% and 2.9%, respectively, for the week. The Nasdaq Composite, however, has been the outperformer. It’s up slightly for the week and has gained 5% for the year, leading the other big indexes.
Bitcoin and ether rose 2.73% and 2.15%, respectively, in the same four-day period.
“Bitcoin seems to be trading along with the Nasdaq and risk assets again, after the past months of decoupling,” said Sylvia Jablonski, CEO and chief investment officer at Defiance ETFs. “This is good news for crypto investors in that if inflation is falling, and the Fed is closer to the end than the beginning of economic tightening, risk assets will catch a breath of fresh air and perhaps lure investors back in.”
Bitcoin traded in lockstep with stocks through most of 2022 as institutional investors that entered the crypto market in the previous year and government stimulus and Federal Reserve monetary policy tightening became the biggest drivers of price.
In the later part of the year, however, that correlation eased and bitcoin’s price remained relatively stable amid a wave of scandals and bankruptcies in the crypto industry and general loss of confidence in the asset class.
Jablonski said bitcoin has benefited from performance bursts this week as short-term sentiment favored Nasdaq stocks. Whether it holds up depends on the Fed’s continued tightening path, and whether or not the economy is pushed into a recession, she added.
This week’s rise in crypto prices also comes amid the latest blow to the industry: Genesis one of the biggest lenders in crypto and one of FTX’s largest unsecured creditor filed for bankruptcy late Thursday night.
Owen Lau, an analyst at Oppenheimer, said crypto’s climb this week was an extension of the rally in risk assets that took place over the first two weeks of the year.
“Bitcoin and digital asset stocks were oversold last year,” he said. “These assets have more than priced in the negative news from the FTX collapse, BlockFi bankruptcy and the fallout of Genesis.”
Investors and others are still wondering what potential second and third order knock on effects could come from the recent blowups.
However, Jablonski of Defiance warned that if there are more similar blowups in crypto, digital assets could not just decouple from trading like a risk asset, but begin trading instead like an “unwanted asset that causes investors panic.”
This story originally Appeared on Cnbc.com