Altcoins
How the Rising QQQ and SPY ETFs Affect Bitcoin and Altcoins
The Invesco QQQ (QQQ) and SPDR S&P 500 (SPY) ETFs are having a good year as U.S. stocks continue to rise. QQQ is up 12% this year and is at its all-time high of $460.
Likewise, the SPY fund jumped more than 11.47% in 2024 and trades at $530 while the SPDR Dow Jones Industrial Average ETF (DIA) rose 3%. This article explores the impact it will have on the performance of these funds Bitcoin and other cryptocurrencies.
Because American stocks went up
There are three main reasons why the QQQ and SPY ETFs rose to their highest level on record. First, there is the continued demand from technology companies like Nvidia, Meta Platforms, Microsoft, and Google.
Nvidia has become the poster child for this question because of its role in the artificial intelligence (AI) industry. Just recently, it released strong financial results that revealed that its revenue increased by more than 200% in the first quarter. It earned more than $24 billion in the first quarter, more than it earned in all of 2019. Technology stocks are the main components of the SPY and QQQ ETFs.
Second, stocks skyrocketed due to the strong earnings release. Recent data from DoneSet showed that earnings grew 6% in the first quarter of this year. This was the best quarterly earnings growth since the first quarter of 2021, and the trend could continue in the coming months. Super Micro Computer, Microsoft, and Netflix are some of the major companies that have posted great results.
Third, there is a growing possibility that the Federal Reserve will begin cutting rates later this year if inflation continues to fall. In most cases, stocks do well when the Fed takes a dovish stance. First, lower rates will lead to a rotation from money market funds holding more than $6 trillion in assets into stocks.
There are other reasons why the S&P 500 and Nasdaq 100 indexes have risen. For example, there is strong demand for US stocks from foreigners, and analysts have become extremely bullish on the stock market. Indeed, Morgan Stanley’s Mike Wilson, a noted bear, recently turned bullish and upgraded his outlook for the S&P 500.
Bitcoin vs. S&P 500 vs. Nasdaq 100 vs. Dow Jones
Implications for Bitcoin and cryptocurrencies
The continued surge in US stocks has a strong impact on the performance of cryptocurrencies. First, the surge in stocks could have a negative impact on Bitcoin and other similar digital tokens Ethereum, Ripple, Cardan and Avalanche. This will happen when investors move from the risky cryptocurrency sector to the stock market.
Secondly, on the bright side, the surge could actually incentivize investors to diversify their assets into the cryptocurrency space. This is even more important now that institutional investors have access to spot Bitcoin ETFs that allow them to invest without the need for wallets.
Historically, there has been some correlation between stocks and Bitcoin. For example, Bitcoin and stocks fell by double digits in 2022 and are now up by double digits this year.
This correlation occurs due to the risk appetite in the market. As we have seen in 2021, risk appetite leads to an animalistic spirit in the market and the buying of most assets and vice versa.