The bulls appear to dominate the so-called risky corners of the financial market.
Bitcoin (BTC), the leading cryptocurrency by market value, rose nearly 13.5% to $48,300 in the seven days to February 12, the biggest one-week gain since October , according to data from CoinDesk. At the same time, the CoinDesk 20 Index, a measure of the largest cryptocurrencies, rose 11%.
The rally came as continued inflows into U.S.-based spot Bitcoin exchange-traded funds (ETFs) likely overshadowed reports that bankrupt crypto lender Genesis was seeking approval to liquidate his Bitcoin holdings of $1.6 billion. Spot ETFs racked up more than $400 million in inflows on Thursday, recording their best day in nearly a month.
The S&P 500, Wall Street’s benchmark stock index, rose for the fifth week, closing above the $5,000 mark for the first time on record.
According to Greg Magadini, Amberdata’s director of derivatives, the boom in AI-related stocks has driven the index higher, and the bullish momentum bodes well for the crypto market.
“It’s hard to say that AI is overvalued. We’re really at the beginning of the AI story and an explosion in its adoption. How do you assess the future of AI? It’s definitely unknown, in my opinion. Crypto is in a similar position. [It is] likely a complement to AI technology given decentralized on-chain data assets and unknowable future use cases,” Magadini said in an email.
“This risk appetite of investors for technology is good for crypto and vice versa,” Magadini added.
NVIDIA shares, already up more than 40% for the year, are leading the AI-led stock market rally. Some observers believe stocks look expensive as the risk premium for S&P 500 stocks has fallen to its lowest level since at least 2003.
The equity risk premium compares projected annual corporate profit growth with the yield on 10-year U.S. Treasury notes or the so-called risk-free rate to assess the relative attractiveness of stocks.
The sharp decline in the risk premium means that stocks are expensive and Treasuries are cheap. This does not necessarily imply risk aversion, which leads to a flight from stocks and cryptocurrencies to bonds.
“We can see that stocks are expensive (or Treasuries are cheap) given this measure. Another way to understand this is that risk sentiment is very strong in the market,” Magadini noted.