Markets
Rotation out of US mega-cap stocks could provide tailwind for cryptocurrencies, says Marex Solutions
Wall Street’s shift toward small-cap stocks over large-cap companies 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 including the so-called 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 ones that until recently have lagged the broader market. The Wall Street Journal attributes the new love for small caps to cool inflation and bolster confidence that the Federal Reserve will lower benchmark borrowing costs this year.
Sector rotation could 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 creating and distributing custom derivatives products.
“As the steam comes off Mag 7, 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 widely held 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 renewed demand for US-listed spot bitcoin (BTC) exchange-traded funds (ETFs). The 11 funds recorded a cumulative net inflow of $422.5 million on Tuesday, the highest tally in six weeks. The total inflow over the past three days was more than $1 billion.
According to Solot, the sector rotation could be particularly favorable for Ethereum’s native token, ether. (ETH)and the imminent debut of spot ETH ETFs.
“The ETH ETF could be the perfect time as AI tech investors look for alternative themes,” Solot said.