Is there a correlation between luxury spending in the U.S. and crypto forex trading? A comparison between the Bitcoin and US dollar (XBT/USD) currency pair and the stock price of luxury giant LVMH Moët Hennessy Louis Vuitton SE (MCP-TRQX) shows a potential correlation between luxury spending and cryptocurrency trading.
This correlation could stem from high-net-worth individuals (HNWI) in the U.S. using profits from cryptocurrency investments to fund luxury purchases. If this is the case, there could be major implications for the stock market, particularly AI stocks.
To understand the potential implications, it is important to recognise that LVMH is seen as a bellwether for the wider luxury industry, with product lines spanning fashion and leather goods, wines and spirits.
As the U.S. market accounts for 25% of group sales, spending patterns in the world’s largest economy are closely tied to company revenues.
The U.S. is widely seen as the key to LVMH’s growth in the years ahead as luxury spending in China has taken a knock recently, with the world’s second-largest economy accounting for a large portion of the 28% of company revenue generated in Asia (excluding Japan).
Europe contributes another 25% to LMVH revenue, but economic challenges in the region make the U.S. a more tantalising option for the luxury giant.
Due to its impact and relevance, LVMH plans to expand into the U.S. with increased production capacity and wider reach.
According to a Reuters report, the company’s founder, CEO and main shareholder, Bernard Arnault, said he was open to increasing the company’s manufacturing and store footprint in the region during a recent trip to attend President Trump’s inauguration.
Recent results from luxury brand Compagnie Financiere Richemont SA (CFRZ-TRQX) add more weight to the view that American consumers are ready to splurge on high-end goods.
The Swiss luxury goods company’s stock surged more than 16% to a record high after it reported strong quarterly sales. Strong U.S. demand helped to deliver these results as the slowdown in China has curbed consumer spending on luxury goods.
However, if the surge in U.S. spending is linked to leveraged crypto forex trading, investors may need to recognise the rising risks, especially those associated with Bitcoin.
Last year, Interactive Brokers CEO and founder Thomas Peterffy warned that many retail investors are using leverage to take long positions in crypto, and are using any gains to take long positions on tech stocks, particularly companies exposed to the AI theme.
As such, Peterffy believes that a Bitcoin crash could be one of the biggest risks of a stock market decline in 2025 due to the high level of systemic leverage.
Quoted in a Binance article, Peterffy explained that downturn risk is high because margin balances are rapidly growing, especially in the Bitcoin space. In addition, the Chicago Mercantile Exchange charges low fees for bitcoin futures, increasing margin risk.
If Bitcoin plummets, Peterffy says this may force investors to sell assets to deal with margin calls, which could trigger a stock market selloff.
CryptoQuant CEO Ki Young Ju backed up these views in a post on social media platform X, urging caution among Bitcoin traders, especially those using leverage. In the post, Young Ju warned that Bitcoin might experience a pullback or move sideways for months.
While all investments carry risks, the potential for losses across both the crypto market and stock market warrants greater awareness and caution among retail investors.
Ultimately, this is a complex issue with no definitive answer, and the relationship between these two markets is likely influenced by various factors, including economic conditions, investor sentiment, and individual preferences.
The best defence is a considered risk management strategy, and ongoing education to understand the dynamics at play to make informed decisions about your DIY investment strategy.
