For the first time in five years, the Russell 2000 Index (IWM) is hitting all-time highs while bitcoin which normally leads at par, is out of sync and remains 27% below October’s record. History suggests that the largest cryptocurrency and cryptocurrencies in general are likely to catch up.
The Russell 2000, a gauge of small-cap U.S. stocks, hit a record high on Thursday, as did measures of larger companies like the Dow Jones Industrial Average (DJIA) and the S&P 500 index. The Nasdaq 100 is just shy of its all-time high and metals, led by silver, are also hitting peaks.
Since 2020, new highs for the Russell 2000 tend to coincide with new highs for bitcoin . This alignment was evident in November 2021, when bitcoin peaked at $69,000. It appeared again in early November 2024, when bitcoin surpassed $90,000, and again in mid-October, when it rose to $126,000. They both hit rock bottom on November 21st.
Milk Road Macro noted in X that smaller, riskier companies are more sensitive to changes in interest rates than large-cap stocks. This sensitivity is particularly important following the Federal Reserve’s 25 basis point reduction on Wednesday. The Russell 2000’s earnings per share growth expectations for 2026 are exceptionally strong, around 49%, according to Goldman Sachs.
Meanwhile, the market is currently priced in another 50 basis points of rate cuts over the next 12 months, according to the CME Fed Watch Tool. This would provide an additional boost to riskier assets such as cryptocurrencies.
The Federal Reserve begins buying Treasury bills
Another source of liquidity is the start of the Federal Reserve’s Treasury bill purchasing program. That begins later Friday, according to ZeroHedge, starting with $8.2 billion as part of its reserve management program.
The purchase is part of a broader $40 billion Treasury bill purchase plan that will begin Dec. 12 along with the reinvestment of maturing agency securities, signaling a renewed injection of liquidity into money markets.
