Markets
Rotation out of US large-cap stocks could provide a tailwind for cryptocurrencies, says Marex Solutions
Wall Street’s shift toward small-cap stocks at the expense of mega-caps could fuel gains in the cryptocurrency market, Marex Solutions told CoinDesk on Wednesday.
Since July 8, the Nasdaq, Wall Street’s tech-heavy index of 100 stocks that includes the so-called Magnificent Seven (Mag 7) of Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla, has traded little changed around 2,270 points. Meanwhile, the Russell 2000, a small-cap index, has risen more than 12%, according to charting platform TradingView.
It’s a sign that investors are pulling money out of the biggest tech companies and pouring it into smaller companies that, until recently, had lagged the broader market. The Wall Street Journal attributes Renewed interest in small-cap stocks is helping to cool inflation and boosting confidence that the Federal Reserve will reduce its benchmark borrowing costs this year.
Sector rotation may be the most important macroeconomic factor for cryptocurrencies, according to Ilan Solot, senior global strategist at Marex Solutions, a division of global financial platform Marex that specializes in the creation and distribution of customized derivatives products.
“As the Mag 7 gets steamed out, money will look for other places to deploy. Small caps are the knee-jerk reaction, but I suspect crypto will benefit from this rotation,” Solot said in an interview.
Solot’s perspective contrasts with the widespread perception in the cryptocurrency market that Nasdaq trends alone determine digital asset valuations.
Institutions and traditional investors may have already started allocating money to cryptocurrencies, as evidenced by the renewed demand for spot bitcoin listed in the United States. (BTC) exchange-traded funds (ETFs). The 11 funds had cumulative turnover Net inflow of $422.5 million Tuesday, the highest count in six weeks. Total inflow over the past three days has been more than $1 billion.
According to Solot, the industry rotation could be particularly favorable for Ethereum’s native token, ether (ETH)and the upcoming debut of ETH spot ETFs.
“The ETH ETF may come at the perfect time as AI investors look for alternative themes,” Solot said.