Crypto correlates more than ever with technology stocks - how do we decouple?

Crypto correlates more than ever with technology stocks - how do we decouple?

Almost $ 240 billion has been destroyed by the cryptoma markets since Friday, as the macro counterwind, which is on digital assets, increases.

Bitcoin fell by $ 36,000 to around $ 30,700 at the time of printing. Ether and XRP lost 14.5 %and 18 %, while Solanas Sol and Binance Coin were most affected among the top cryptocurrencies-both lost 19 %.

Overall, Krypto is now worth $ 1.4 trillion (one hint of less than the market capitalization of Alphabet) after it has lost 15 % at its low point since July 2021.

crypto shares were also affected. Top minity Marathon Digital collapsed by 17 % on Monday; Coinbase collapsed by 18 %; and Microstrategy collapsed by almost 25 %-which, taken together, corresponds to more than $ 5.4 billion in shareholders' losses.

But bad crypto markets reflect stocks with poor performance on a broad front. The S&P 500 fell by 2.5 % and the technology -heavy Nasdaq 100 fell by 3.5 %.

The S&P and the Nasdaq have now lost 16 % or 26 % over the course of the year. According to TradingView data, which were compiled by Blockworks, the total value of the cryptocurrencies collapsed by more than 35 % in the same period.

In fact, crypto and stock markets are increasingly correlated, especially with technology stocks, since Bitcoin's price has followed Blue chip technology shares such as Apple, Amazon and Microsoft all year round.

And little has changed in the recent downturn. In fact, the correlation becomes narrower.

"At the moment correlations occur over and within most investment classes, not only at Krypto", ABEBET, VICE President of Principal Trading at Galaxy Digital said.

the latest significant changes in monetary policy, said Abbe-in addition to the highest inflation rates since a generation-crypto and other assets have put pressure on the Bundesbank after a time of "extremely relaxed" quantitative-friendly regime.

"In the long term we will see a decoupling of cryptoassets when tokens mature and all develop with their own idiosyncratic features," said Abebe.

crypto-capitulation produces innovation

But what does it take to see how crypto actually decouples from technology stocks?

David Nage, portfolio manager at the crypto investment company Arca, said Blockworks that it could require a complete surrender.

Nag argued that earlier decoupling of the correlations between digital assets and technology stocks took place after March 2020, when both the stocks and cryptoma markets became a spiral due to the pandemic, which became a black swan.

The cryptoma markets started in April, May and June 2020, while the technology shares were still focal. Many attributed these climbs to widespread Lockdowns, in which DayTrader with their stimulus checks returned to digital assets.

"I definitely believe that digital assets will potentially disconnect from their correlation with stocks to arouse interest, and they are new platforms and innovations that do this," he said.

But Nage does not see an enormous innovation in Defi (decentralized finances). Instead, he is mainly witness to copy paste projects that mimic Ethereum-powered defi projects that were popular in 2020: decentralized stock exchanges and automated market maker.

"What we have seen from past crypto winter, especially in 2018, is that there will be a time when innovations begin to get together in the founder-they start building platforms that attract our attention and application instead of increasing money every three months," he said.

Nage pointed out three crypto companies that collected money in the last large "crypto winter": Fireblocks, OpenSea and Blockdaemon. These are "defining parts of the infrastructure that made a lot possible today," he said.

crypto can still be an instrument to combat inflation

When other Layer 1 chains were breeding grounds for innovations, why is the market still following Bitcoin?

"Bitcoin is the liquidest of all crypto-assets, so institutions concentrate their energy on what it is likely that it will lead to the foreseeable time the crypto market atmosphere," said Abbe of Galaxy.

But crypto supporters once claimed that digital assets could serve to secure themselves against growing inflation and even diversify portfolios. Instead, the losses of Bitcoin increased inflation last year, while the high correlation of crypto with technology shares means that digital assets serve as pseudo-inflated bets in the largest companies in the world.

For Nage, the problem of inflation is now staring in the face. It is something with which several generations did not have to deal with. He introduces himself to a phase of adaptation that will produce new play books, guided by the review of what we have previously done to contain inflation, "and that will take some time."

"Ultimately, our generation together with recent generations will always have an incredible interest in digital assets and technologies," said Nage. "We are the mobile native, crypto-native generation-games, mobile devices, the Internet, that's what we know."

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