Chief executive Alexander Hagen of Ace Digital believes the sell-off in AI stocks is a normal correction, and points out that bitcoin has fallen from $87,000 to below $74,000 without decoupling from the stock market.
Photo: Alexander Hagen, chief executive of Ace Digital.
The past few weeks have brought several big market moves at once: a suspected Binance hack, the US midterm elections and a broad sell-off in AI stocks, with sentiment among market participants and the media negative for several weeks. In an interview with Morten Myrstad on Kaupr TV, Alexander Hagen, chief executive of Ace Digital, assesses how the different moves are connected, with an emphasis on what is happening in the bitcoin and derivatives market, his area of expertise.
The video: Alexander Hagen, chief executive of Ace Digital, in conversation with Morten Myrstad on Kaupr TV.
Bitcoin has, according to Hagen, risen strongly from its low in the second quarter, up to around $87,000, before falling back to below $74,000.
Many in the market are watching the 200-day moving average, which Hagen puts at around $73,000, as a possible floor. Over the longer term, many rely on the 200-week moving average, now at around $67,500 and seen by some as a harder floor. Hagen says he isn't sure that holds. – When the market is going to test you, it's going to test you, he says.
Volatility in the bitcoin market hasn't changed much recently, according to Hagen. The implied volatility rank in the options market is around 40 percent, meaning the level has been higher 84 percent of the time over the past twelve months — a historically low level. Hagen says this continues a multi-year trend in which bitcoin has become a less volatile asset: from around 80 percent, the ranking has fallen to below 40 percent.
Lower volatility has, according to Hagen, only partly drawn in new interest from traditional finance. He notes that this type of investor typically arrives when the market is at a new all-time high, while it is now relatively quiet.
Hagen says he has grown more bullish on bitcoin over the longer term since last November, partly because he sees signs of growing adoption, and because he views the current geopolitical noise as positive for bitcoin as an asset.
At the same time, he stresses that bitcoin still hasn't decoupled from the rest of the market. – It's still a risk-on product, with a positive correlation to Nasdaq and the stock market more broadly, Hagen says.
Much of the underlying market unease lies in the rates and bond market, according to Hagen, where he believes governments in several countries are mismanaging public finances: no one wants to lend them money over 30 years any more, so long-term rates are rising, while short-term rates are controlled more directly. He compares it to paying off debt with a credit card.
He also points out that around half of the total value of the stock market, which he estimates at $150 trillion, is in practice just money being parked somewhere safe. Hagen illustrates the point by comparing the credit risk of a company like Alphabet with sovereign debt: he would rather lend money to Alphabet at 8 percent than to France at 5 percent, because he judges the counterparty risk to be lower. The current war rhetoric in Europe, he says, doesn't make the picture any better.
Hagen believes the decline in AI stocks is mainly about timing, not a sign the sector has become overvalued. – I think it's just time for a correction. We don't think the market is going much further down, and we don't think the pricing is particularly expensive either, he says.
One of the questions in the interview was whether the recent decline in AI stocks is also down to some hedge funds having taken on too much debt in AI investments and now reducing that exposure. Hagen links this further to investors wanting to take part in the expected initial public offerings of Anthropic and OpenAI needing fresh capital, and therefore selling down elsewhere. He draws a parallel to when SpaceX raised capital, and money flowed out of crypto and bitcoin into that investment.
Sources: Ace Digital
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