Trading Nation

Bitcoin is selling off this year. Here's what the decline could mean for stocks

Is bitcoin sending a warning sign to stocks?
Is bitcoin sending a warning sign to stocks?

Bitcoin is now nearly a third of its record high of nearly $20,000 reached last December.

To investors worried bitcoin's bursting bubble could spill over into equities, one market watcher says the crisis is contained.

"There are things to be concerned about in terms of the stock market here with emerging markets and other issues, but I don't think bitcoin is going to be one of them," Matt Maley, equity strategist at Miller Tabak, told CNBC's "Trading Nation" on Wednesday.

Maley understands the fear, though. The steep rise and sharp fall in bitcoin prices is reminiscent of the 1990s dot-com bust, he says, but the difference now is the investment's breadth.

"Everybody was talking about both of those things when they were in their bubbles, but only in the tech stocks did they own it all," said Maley. "Everybody seemed to own some tech stocks, whether it be the individual names or through their mutual funds. Today, while that bubble was forming in bitcoin, not very many people bought it at all."

The correlation between bitcoin and stocks has begun to splinter since May. Before then, price movements were tight. When the cryptocurrency reached records in December, the reached its own a month later. As stocks sold off in February and March, so did bitcoin.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, expects that divergence to grow.

Bitcoin "attracted a huge amount of speculative capital early and that capital is getting bled out," Schlossberg said on Wednesday's "Trading Nation." "You're going to see even a further divergence between the price of bitcoin and the price of stocks going forward."

Their split in price could accelerate if bitcoin plunges to a critical support level, adds Schlossberg.

"The $5,000 area is going to be the line between the diehards and the fair-weather fans in bitcoin. If the currency basically drops below that level I think you're going to see forced liquidation from all ends," he said.

That level is 23 percent bitcoin's price on Thursday morning, above $6,500. At $5,000, it would be priced at a quarter of its highs.