Since the outbreak of war with Iran on February 28, bitcoin has begun to move away from software stocks, with the iShares Expanded Tech-Software Sector ETF (IGV) serving as a useful indicator for the sector.
Bitcoin has been one of the top-performing assets during this period, rising more than 5% and trading above $69,000 again, including a gain of more than 0.5% in the last 24 hours.
The VAT, on the other hand, has fallen more than 2% since the conflict began. That gap suggests investors are starting to treat bitcoin and software stocks differently, at least in the near term.
Until recently, the two had moved in close together. In the last three months, bitcoin fell 26% and the ETF lost 23%. Year to date, both are down about 21%. In five years, bitcoin has gained 18% compared to 10% for the IGV. That is, both have moved in the same direction, but the cryptocurrency has done so with much greater volatility.
That is also clear in his falls. Bitcoin had fallen about 50% from its October all-time high, while IGV, which peaked a little earlier, fell about 35% from its own high.
The correlation data tells the same story. As of early February, bitcoin and IGV were almost perfectly correlated, close to 1.0, meaning they were moving at almost the same pace. After the war began, that relationship broke down dramatically, and the correlation fell to 0.13, a level almost indicative of decoupling, before rebounding to around 0.7. The figure can range from -1.0 to +1.0, where 0 indicates no correlation.
Why have software stocks been hit the hardest?
IGV is heavily weighted toward large software and services companies like Microsoft (MSFT), Oracle (ORCL), and Salesforce (CRM). Investors are increasingly concerned that artificial intelligence will compress software margins and valuation multiples, especially in software as a service (SaaS), as competition increases and barriers to entry fall. Meanwhile, Bitcoin is trading more as a macro asset, benefiting from geopolitical uncertainty.
