In 10 days, the Nasdaq fell 1200 points, or about 10% of its value. But, behind this spectacular fall, there is a fundamental movement caused by the war in Ukraine, the rise in energy expenditure, and inflation which is putting a strain on household and business budgets. Observers have been noticing for some months a strange correlation between the fall of the Nasdaq and the fall of Bitcoin. We’ll tell you what’s behind it all.
Nasdaq drop: what’s going on?
To understand the fall of the Nasdaq, you must first know what the NASDAQ is. Behind this acronym hides an index that brings together the stock market valuation of all big american tech companies. As well Facebook as Google, Uber, AirBnB or Stripe.
L’inflation which has hit the entire world since the beginning of the year has three severe consequences for these companies. First, these companies all have in common to consume a lot of electricity (to run their servers in particular). And so, they bear the full brunt of the increase in this raw material. Then, with inflation, interest rates rise and borrowing becomes more expensive. Consequently, the fall of the Nasdaq can also be explained by the anticipation by investors that these companies will have more difficulty in growing.
Finally, it must be admitted that the technology stocks are not necessarily essential on a daily basis. For example, a company in difficulty will first go without advertising (which generates loss of income for the Google group, or Meta). They are therefore more exposed to inflation, which eats away at household and business budgets.
Read also Why are Bitcoin, Ethereum and crypto-related stocks soaring today?
What is the link with Bitcoin?
Bitcoin is linked to one of the three criteria mentioned above. Indeed, Bitcoin today consumes a lot of electricity. A rise in energy prices therefore has a significant impact on mining costs, and on the ultimate appeal of this cryptocurrency. Thus, a rise in energy has a downward impact on Bitcoin, like the Nasdaq.
But, the fall of the Nasdaq has another perverse effect that further explains the correlation between Nasdaq and Bitcoin. Professional investors (pension funds for example) choose to disinvest in Bitcoin to offset their losses in the Nasdaq. This creates a strong synergy between these two a priori very different investments. And that explains why the fall of the Nasdaq brings, in its wake, the fall of bitcoin.