Bitcoin’s slump over the holiday season is starting to have a knock-on effect on stock markets.
That’s according to Wells Fargo’s head of equity strategy, Brian Sullivan, who raised those concerns in a Monday interview with CNBC.
Bitcoin prices, which soared as high as $19,500 earlier this month, began slumping the week before Christmas and hit lows just above $12,000 on Friday.
As of Tuesday, the value of the cryptocurrency has rebounded to $15,600.
“There’s a significant amount of froth in the crypto markets. We do think that if that froth comes out, it will spill over. It’s not going to happen in a vacuum,” Sullivan said, noting that the price of Bitcoin had outrun the value of the underlying asset. “And we’re beginning to see a very small glimpse of that today, with technology down a little bit.”
As of mid-day Tuesday, the S&P 500 is trading almost flat at 2,681 as it closes out its own record-breaking year, while an index tracking technology-related stocks, the Technology Select Sector SPDR ETF, is down about 0.6%. Bitcoin’s rise is believed to have benefitted the stocks of some tech companies, including semiconductor makers such as Nvidia, whose chips are used in Bitcoin “mining.”
Sullivan isn’t the first to warn of collateral damage from a Bitcoin slump.
Deutsche Bank Chief International Economist Torsten Slok previously said that a Bitcoin crash could hurt the confidence of retail investors.
If those investors do get out of Bitcoin during a slump, they may be less willing to invest those same funds in stocks for fear of a similar decline, and could become less willing to spend in general.
Any spillover, however, is likely to be limited, given the cryptocurrency market’s relatively modest size. While the total market capitalization of the roughly 1,382 digital coins tracked by coinmarketcap.com is just under $600 billion, the S&P 500 is worth about $24 trillion.
That’s not to say that the market won’t get larger, or more volatile. “It’s something to watch out for in 2018,” Sullivan said.