For the first time in five years, the Russell 2000 Index (IWM) is reaching new heights while bitcoin , which typically rises alongside it, is currently lagging and remains 27% below its peak in October. Historical trends indicate that the major cryptocurrency, along with the broader crypto market, is expected to align soon.
The Russell 2000, which represents U.S. small-cap stocks, recorded its highest value on Thursday, matching the upward trajectory of larger companies as seen in the Dow Jones Industrial Average (DJIA) and the S&P 500 Index. The Nasdaq 100 is just shy of its all-time peak, and commodities, particularly silver, are also on the rise.
Since 2020, surges in the Russell 2000 have frequently coincided with new highs for bitcoin . This correlation was evident in November 2021 when bitcoin hit a high of $69,000. It reoccurred in early November 2024 when bitcoin crossed $90,000, and again in mid-October when it surged to $126,000. Both instances saw a decline on Nov. 21.
Milk Road Macro highlighted on X that smaller, riskier firms are more affected by interest rate fluctuations compared to large-cap stocks. This sensitivity is particularly crucial after the Federal Reserve’s 25 basis-point cut on Wednesday. According to Goldman Sachs, projections for 2026 Russell 2000 earnings-per-share growth are remarkably high at around 49%.
Meanwhile, an additional 50 basis points of rate cuts are currently anticipated in the market over the next year, as per the CME Fed Watch Tool. Such cuts would potentially further benefit riskier assets, including cryptocurrencies.
Fed Initiates Treasury Bill Purchases
Another source of liquidity is the Federal Reserve’s upcoming Treasury-bill purchase program, set to commence later Friday, as reported by ZeroHedge, starting with $8.2 billion under its reserve management initiative.
This buying activity is part of a larger $40 billion Treasury bill purchase strategy commencing on Dec. 12, which includes the reinvestment of maturing agency securities and indicates a fresh liquidity infusion into the money markets.
