It appears that some of the high-profile crypto fund managers have less of a crystal ball than some may want to believe.
Back in February, Joey Krug and Dan Morehead, the two co-chief investment officers at crypto hedge fund Pantera Capital, predicted that crypto markets would “decouple” from traditional markets in the coming weeks.
“Our view is it’s going to decouple over the next number of weeks and crypto will sort of trade independently again. It’s my personal view that USD 2,200 ETH was likely the bottom,” Joey Krug said at the time.
At the same time, Dan Morehead also had a bullish outlook on digital assets, even in the face of looming interest rate hikes.
“I think when all’s said and done, investors will be given a choice: they have to invest in something, and if rates are rising, blockchain is going to be the most relatively attractive,” Morehead said.
Now, in mid-May, it seems that the Pantera executives were wrong this time.
As of May 17, bitcoin (BTC), the largest cryptoasset, is down by well over 50% from its all-time high in November last year. Meanwhile, correlations between BTC and the stock market hit its highest level on Monday last week, when BTC fell 10% and the Nasdaq Composite Index, a stock index consisting of many large technology companies, fell 4%.
Commenting on the current state of the crypto market, Noelle Acheson, Head of Market Insights at digital asset broker Genesis Global Trading, told Cryptonews.com that institutional macro-focused investors over time have changed the way crypto markets move.
While correlations between BTC and stocks in the past have been cyclical, “swinging from positive to negative and back again,” this started to change in early 2020 with the increasing institutionalization of the crypto market, Acheson said.
According to her, correlations have now reached “unambiguously high levels,” breaking through 0.75 on a 60-day basis during last week’s turbulence.
A correlation of 1 means two markets are moving in lockstep with each other, while 0 means they are not correlated at all.
“This makes sense – if macro investors treat bitcoin as a risk asset, it will behave like a risk asset, especially since shorter-term investors tend to control the price setting,” Acheson said.
Despite this, she added that there is still hope for those who want to see bitcoin and crypto more broadly become uncorrelated with traditional assets again. When short-term investors leave the market to de-risk, long-term investors, who do not necessarily view bitcoin as a risk asset, will once again gain more control over pricing, she said.
“When this happens, correlations will correct. Given the changing makeup of market participants, it is very unlikely they get back to their early 2021 levels. It is also unlikely they will stay low, since macro investors will come back into the market as soon as they see crypto start to outperform again,” the Genesis’ analyst said.
In either case, the idea of the decoupling is still alive.
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