“Risk-on digital assets is a wager on the future of finance; if money is going to move to the blockchain, owning the money of the blockchain is a reasonable way to play it”--Paul Ebeling
There are lots of reasons why bitcoin does not correlate with the major macro assets. Some of it has to do with its value proposition. Another may be because crypto markets are still in their infancy and are still driven around by a few major players.
The Northside for portfolio managers and savvy investors is that low correlations with other asset classes makes crypto something that must be considered for a portfolio to boost diversification.
In centralized and decentralized exchanges, we are seeing more volumes in the stablecoin pairs instead of the BTC or Ethereum pairs. Because alternative tokens are traded against stablecoins, the correlation between Ethereum or bitcoin has gone down.
When a cryptocurrency is mostly priced against another cryptocurrency such as bitcoin, they will just move together. Trades against stablecoins, which are often pegged to USD, break those currencies’ connection to the likes of bitcoin and ether.
Shayne and I see Y 2022 as the yr altcoins become more uncorrelated with bitcoin which, in turn, is uncorrelated with macro assets. In that case, we will see a world where traditional portfolio managers will have to buy the alts in order to have a diversified portfolio.
Have a prosperous, happy Christmas week, Keep the Faith!