As the S&P 500 reaches record highs, bullish sentiment dominates not only traditional markets but also the supposedly risky corners like cryptocurrencies.
Bitcoin (BTC), the top cryptocurrency by market cap, saw a remarkable surge of nearly 13.5% to $48,300 during the week ending on Feb. 12, marking the largest single-week gain since October. Concurrently, the CoinDesk 20 Index, representing major cryptocurrencies, rose by 11%.
This rally occurred amidst continuous inflows into US-based spot bitcoin exchange-traded funds (ETFs), outweighing reports of bankrupt crypto lender Genesis seeking approval to liquidate its $1.6 billion bitcoin holdings. On Thursday alone, spot ETFs received over $400 million in inflows, the best day in almost a month.
Meanwhile, the S&P 500, Wall Street’s key equity index, enjoyed its fifth consecutive week of gains, closing above the $5,000 level for the first time on record.
According to Greg Magadini, Director of Derivatives at Amberdata, the surge in stocks related to artificial intelligence (AI) has propelled the index higher, indicating positive momentum for the crypto market.
“It’s difficult to determine if AI stocks are overvalued. We are still at the nascent stage of the AI narrative and its widespread adoption. How do you quantify the future of AI? It remains uncertain, in my view. Crypto finds itself in a similar position, likely complementing AI technology with decentralized on-chain data assets and unforeseeable future applications,” Magadini explained.
“This investor appetite for tech risks benefits both crypto and AI,” he added.
Stocks such as NVIDIA, up over 40% year-to-date, are leading the AI-driven surge. While some argue that stocks appear expensive due to the decline in the S&P 500 equity risk premium, which is at its lowest since at least 2003, this doesn’t necessarily indicate risk aversion leading to capital outflows from stocks and cryptocurrencies into bonds.
According to Magadini, the decline in the risk premium suggests strong market sentiment favoring risk-taking, rather than risk aversion, indicating that stocks are perceived as expensive or treasuries as cheap based on this metric.
This information is not legal advice. Do your own research before making any decisions. Only invest what you can afford to lose and seek independent financial advice if needed. Understand the risks involved before purchasing any cryptoassets.