Since the war with Iran broke out on February 28, Bitcoin A break away from software stocks has begun, with the iShares Expanded Tech-Software Sector ETF (IGV) becoming a useful proxy for the sector.
Bitcoin has been one of the strongest performing assets during this period, rising more than 5% to take the price back above $69,000, including a gain of more than 0.5% in the past 24 hours.
In comparison, IGV has fallen by more than 2% since the conflict began. The gap suggests investors are starting to treat Bitcoin and software stocks differently, at least in the short term.
Until recently, the two had a close relationship. In the past three months, Bitcoin has fallen 26% and ETFs have fallen 23%. Year to date, both are down about 21%. In five years, Bitcoin is up 18%, while IGV is up 10%. In other words, both are moving in the same direction, but cryptocurrencies are much more volatile.
This is also clear from their decline. Bitcoin is down about 50% from its all-time high in October, while IGV, which peaked earlier, is down about 35% from its peak.
Related data tells the same story. Since the beginning of February, Bitcoin and IGV have been almost perfectly correlated, approaching 1.0, meaning they are almost in lockstep. After the war began, the relationship broke down sharply, with the correlation falling to 0.13, a level indicating near decoupling, before bouncing back to around 0.7. This number ranges between -1.0 and +1.0, where 0 means no correlation at all.
Why are software stocks being hit harder?
IGV focuses on large software and services companies such as Microsoft (MSFT), Oracle (ORCL) and Salesforce (CRM). Investors are increasingly worried that artificial intelligence will squeeze profits and valuation multiples in the software space, especially in the software-as-a-service (SaaS) space, as competition intensifies and barriers to entry fall. Bitcoin, meanwhile, trades more like a macro asset, benefiting from geopolitical uncertainty.