Crypto prices are lately behaving in a way that they haven’t for a long time.
In the past week, all major stock benchmarks were deep in the red. The S&P 500 cratered to 3,600 and hit the lowest level since Dec 2020. And both the Nasdaq and Dow were down some 5%.
Meanwhile, crypto has unexpectedly lunged in the opposite direction. In the same span, the bitcoin price jumped 6%, ethereum is up 4%, and many major altcoins scored near double-digit gains. (BNB
This decoupling came as a big surprise because for much of 2022 crypto moved in tandem with stocks.
As I wrote back in April: “Major cryptos are highly correlated to the stock market. They also have a high beta to stocks. That means crypto, in effect, amplifies stock moves. If stocks soar, cryptos soar higher. And vice versa. If stocks tumble, crypto goes into free fall. Not only that, both the correlation and beta have significantly increased since the beginning of the pandemic, according to the IMF.”
And until very recently, this correlation held at record highs. So, is the long-awaited crypto decorrelation here? Or is there something else at play?
The answer is yes and no.
There are two theories that explain crypto resilience in the face of market turmoil. The first is that crypto has gained a critical mass of long-term investors (aka HODLers) who have enough conviction to hold through the crash.
In a recent note, Bitnex wrote that their data shows the “anomalous” rise of bitcoin HODLers despite the bear market: “The number of HODLers in the top 5 categories (up to 0.1 BTC
Glassnode’s on-chain analysis confirms that HODLing is at record levels and has a profound effect on bitcoin prices: “The cohort of investors with older coins remain steadfast, refusing to spend and exit their position at any meaningful scale… with mature spending severely muted, the degree of HODLing behavior is historically high.”
The other theory is that this brief decorrelation is just short-term noise because crypto was simply faster to digest macro news and corrected in full before the stock market.
“[The Fed] was heavily front run in crypto, and we’re hence seeing a correction before stocks have even fully moved,” Wilfred Daye of Securitize Capital told Bloomberg. “This has been a pattern we’ve seen repeatedly with event-driven moves recently due to the relative immaturity of crypto markets and their participants.”
With just a few weeks into decoupling, it’s too early to call a full-fledged crypto “decorrelation” from stocks. On the other hand, as far as bitcoin is concerned, HODLer conviction alone is giving hope that further downside is limited.
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